Potential impact of EITC adjustments on financial self-sufficiency among low-income families: A simulation model

Abstract

Policies that help low-income mothers find and keep employment as a means of obtaining self-sufficiency have been a focal point of the welfare reform debate in the past decade. In the midst of this dialogue, the Earned Income Tax Credit (EITC) has gained popularity as one of the core work support programs for America's low- and moderately low-income families with children. This study compares the estimated effects of EITC when its value deteriorated in the late 1990s with that of a simulated EITC for which the real value kept pace with the actual cost of living on welfare caseload reductions. Results indicate that the simulated EITC model showed a significantly greater impact on promoting financial self-sufficiency among low-income families. Policy and practice implications for strengthening the purchasing power of the EITC conclude this article.