There has been a renewed interest in raising the federal minimum wage in the US, with some members of Congress calling for an increase to $15 an hour. Some opponents to the minimum wage suggest that the Earned Income Tax Credit (EITC) is a better policy. This question explores the EITC. Low-wage workers receive additional income from the federal government depending on how much they earned and how many children they have. Consider an individual with one child: there is no credit if nothing was earned. the credit equalled $.34 per dollar earned and peaked at around $3050, when the worker earned $8950. it remained at $3050 until the worker earned around $16450 it was phased out gradually, by $.16 per dollar earned, until eliminated completely if the worker earned $35525 or more per year. Graph the budget constraint for this individual assuming there are no other taxes, and they earn "W" dollars per hour.

Analyze how the implementation of the EITC influences the hours of labour supplied. Assuming that substitution effects are larger than income effects for this low-wage worker, does the credit necessary increase hours work for all those who are eligible? Why or why not?

How does the EITC impact an individual's labour force participation decision if the individual was not working in the absence of the EITC program?

The Working Income Tax Benefit (WITB) is the Canadian equivalent to the EITC. It provides no credit until labour earnings reach a minimum of $3000. The benefit is then calculated on the basis of "earnings minus $3000. What would happen to the work incentives of the EITC is a similar $3000 threshold was introducted?