Impact of Earned Income Tax Credit on Female Labor Force Participation Rate - Analysis of Rural vs. Urban Counties

Abstract

Since 1975, the Earned Income Tax Credit (EITC) has been used as a mean of transferring income to the poor working class and their families. Within the past 40 years, the EITC has been expanded five times, paving the way for this program to be one of the largest anti-poverty tools currently in use. While research has been done on the impact that the EITC has on labor force participation rates, minimal work has been done on the labor force participation rates of women, and even less so on the impact of living in rural or urban counties. To address this issue, this study examined 3,138 counties (and county-equivalents) in the United States between the years of 2011 and 2014. It is found that while the EITC does contribute positively towards the labor force participation rate of single women with children, the results are not found to be statistically significant within rural counties. Similar results can be seen with married women who choose to leave the labor force due to the EITC that their partner receives; urban counties produce statistically significant results, while rural counties do not. These results have important policy implications, as upcoming tax reform discussions need to focus on incentives to work that better align with the characteristics of the labor force in rural counties.