Question

1. Which of the following could result from implementing an Earned Income Tax Credit–like program for childless workers?

a. Labor participation rates among these workers would increase.

b. These individuals would no longer work.

c. These workers would seek higher-paying jobs.

d. Labor participation rates among these workers would decrease.

2. For someone who is not working at all without the Earned Income Tax Credit (EITC), which statement is true when the person is subject to the EITC, once he starts working?

a.There is no income effect.

b. The substitution effect of the EITC induces the person to work more.

c. The income effect of the EITC induces the person to work more.

d. There is no substitution effect.

Answer 1

1. Option A

Labor participation rates among these workers would increase.

The earned income tax credit (EITC) provides substantial support to low- and moderate-income working parents, but very little support to workers without qualifying children (often called childless workers). Workers receive a credit equal to a percentage of their earnings up to a maximum credit.So, if this program is implemented for childless workers then it will induce them to work and participate in labor force.

2.Option B

The substitution effect of the EITC induces the person to work more.

The Earned Income Tax Credit subsidizes the wages of low income earners.The purpose of the Earned Income Tax Credit (EITC) is to reduce federal income and payroll taxes for workers with low to moderate incomes.The EITC has a powerful effect in inducing many more workers to enter the labor force and go to work.