Research

• Unintended Consequences of Earned Income Tax Credit: Maternal Labor Supply and Child Development [link]

Abstract

This paper examines the impact of the Earned Income Tax Credit (EITC) on the children of single mothers. While the EITC is typically thought to benefit low-income children by increasing family income, it may also decrease caregiving inputs as a result of increased parental labor supply. Children of single mothers may be particularly sensitive to such decreases due to the lack of other parental support. Using a difference-in-differences (DID) approach to look at the impact of the 1993 EITC expansion, I find that EITC expansion reduces the combined math and reading test scores of children of single mothers by 13.61 percent of a standard deviation. The most important mechanism is reduced mother-child interactions due to the increased maternal labor supply. These results suggest that for the EITC to be an effective poverty reduction tool, it may need to be paired with other interventions such as child care.

• Regulation of Natural Monopolies, Self-Selection, and Optimal Taxation: Theory and Evidence ., with professor Chul-In Lee

Abstract

It is well-known that the increasing returns-to-scale (IRS) property accounts for the presence of natural monopolies, which usually become public enterprises or are subject to regulations. This paper argues that public enterprises provide private goods not only for the IRS property, but also for relaxing the incentive problem of the tax system: they help relax the self-selection constraint of the optimal income tax problem through nonlinear pricing. The intuition is that when some private goods with IRS properties (e.g., public transportation service) relative to other goods are more valuable to low-ability individuals than the high-ability counterparts in terms of the marginal rate of substitution (MRS), the high-ability individuals are discouraged to mimic low-ability ones. Our results provide theoretical underpinning for the low price of publicly provided private goods for low-income individuals, breaking the p = MC rule for efficient redistribution. The optimal nonlinear pricing allows low marginal tax rates for both types, leading to greater work incentives. We implement this idea empirically and obtain supportive evidence using individual panel data.