An Estimate of the Local Economic Impact of State-Level Earned Income Tax Credits

Abstract

This study investigates the impact of state-level earned income tax credits on local economic outcomes (employment, wages, and establishments). The study employs difference-in-differences and triple difference models to estimate the impact of these credits at the border of metropolitan areas where one side of the border adopts the credit between 1986 and 2012, and the other side of the border does not. Separate analyses are conducted for specific industries and subindustries. Synthetic control methods are used as a robustness check. The analyses suggest that state-level earned income tax credits do not have a significant impact on the local economic outcomes of metropolitan areas. At least one potential reason offered is that while these impacts are not a direct goal of the program, the credits may not be large enough to realize positive economic gains.