New Research Shows Expanding the EITC Can Help Reduce Income Inequality

By Devin Simpson

A new study of expansions to the District of Columbia’s Earned Income Tax Credit (EITC) yields promising findings: the credit’s growth is linked to increased earnings and reduced income inequality for D.C. taxpayers.

EITC Expansions, Earning Growth and Inequality: Evidence from Washington, D.C. used longitudinal administrative tax data to study how expansions to D.C.’s EITC that occurred between 2001 and 2009 impacted earnings and income inequality for the city’s residents. The study’s authors found that the expansions were associated with a “recipient pre-tax earnings growth of roughly 3-4 percent, primarily among single mothers.” What’s more, the D.C. EITC — when combined with the federal EITC — raised after-tax incomes by 15-20 percent on average and reduced income inequality in Wards 7 and 8 over time, which have the highest concentration of EITC recipients in the city.

Bradley Hardy, associate professor at American University’s School of Public Affairs and nonresident senior fellow at the Brookings Institution, recently presented the study’s findings at a lecture at the University of Michigan’s Gerald R. Ford School of Public Policy. Hardy highlighted the growing research that highlights the benefits of the policy. “There has been a whole battery of labor economics and social policy research showing that this tax credit does in fact incentivize work,” Hardy said.

D.C.’s refundable EITC is currently worth 40 percent of the federal credit and is one of the most generous programs in the country. To learn more about state and local EITCs, visit our 50-state map here.