1.Consider the following schedule for benefits for a family of four under the EITC:

Phase-in: $0-$10,600

Neutral: $10,601-$18,900

Phase-out: $18, 901-$40,100

Phase-in rate=40%

Phase-out rate=%20

Neutral rate=%0

Please answer the following questions for a family earning $30,000 per year.

a.How many dollars of refundable tax credits will this family receive from the EITC program in a year?

b.For this family, how does the phase-in component of the program affect the family's incentive to work?

c.How does the neutral component affect the family's incentive to work?

d.How does the phase-out component affect the family's incentive to work?

e.Is the EITC creating an income effect? Explain.

f.Is the EITC creating a substitution effect? Explain. Hint: it could create more than one substitution effect.