1. The Earned Income Tax Credit (EITC) is the largest income redistribution system in the United States, popular on both the left (for its ability to give poor families a leg up) and right (for encouraging labor force participation among welfare recipients) sides of the political spectrum. Let's analyze the labor supply decision for taxpayers with two or more children (though I've simplified the numbers a bit). Say a representative individual from this group makes $16 an hour (around the national average), no matter how many hours she works. The EITC goes into effect as follows: i) If she works 0 to 12 hours per week, she gets a tax credit of 50% of her hourly wage. That is, her effective wage is $24 per hour worked (her hourly wage of $16 plus 50%). ii) If she works 12 to 20 hours per week, she gets a credit of $96 per week, on top of the $16 she makes per hour worked. iii) If she works 20 to 44 hours per week, she still gets a credit, but for every hour over 20, her credit is reduced by 25%. So her credit is $96-25%*$16*(H-20), where H is the number of hours worked (20