a) What is the Earned Income Tax Credit?

b) There is a worker at a 7 Eleven with 2 dependent children in a small town in Texas. She earns

$7.50/hour which sums to $15,600 for a full

-

time (40 hour) year. Calculate the size of her E.I.T.C. rebate.

What would her "marginal or effective wage rate" be during the first part of the year?

c) Has the E.I.T.C. provided the above worker with an economic incentive to work more hours? Sketch

this out on a labor/leisure model. Do you think this economic incentive

actually could

influence worker

decisions?

d) A worker closer to us in College Park earns $12/hour and has 2 dependent children. For a year of

40

hour

weeks, she will earn $24,960. Calculate the size of her E.I. T. C. benefit. What is her effective

(marginal) wage rate in February? What is her effective wage rate in December? Why do they differ?

{{The EITC provides a family with 2 children a 40% tax rebate up to an income of $12,570 with a

maximum benefit level of $5028. This benefit level can be attained up to an income of $16420.

Thereafter, the benefit is phased out at a rate of 21% (at the margin, each dollar you make beyond

$16420 is effectively taxed at a 21% rate) until the benefit subsidy ends at $40295.