Economics ETDs

Publication Date

Winter 12-11-2019

Abstract

The Earned Income Tax Credit (EITC) is one of the most successful poverty alleviation programs in the US tax code. In New Mexico tax filers may apply for a refundable credit – the Working Family Tax Credit (WFTC) – that is predicated upon receipt of the EITC on their federal return. However, the preponderance of research examining the efficacy of the EITC is premised upon two hypotheses: economic conditions are expanding and those seeking work can find it.

Subsequent to the Great Recession, it is not clear that these hypotheses hold. The Great Recession began in Q4-2007 and continued into Q3-2009. During that period, the US unemployment rate grew from 5.1% to 9.7%; the rate peaked during Q4-2009 at 10.09%. During the same period in New Mexico, unemployment grew from 3.8% to 7.9%; New Mexico’s unemployment rate peaked later, during Q2-2010 at 8.3%.

This paper endeavors to understand how inefficiencies in the labor market affect EITC uptake, and what traits are indicative of low-income tax filers who do not receive the EITC. Using eight years of New Mexico tax data from 2008-2015, I examine changes in EITC uptake through uptake of New Mexico’s WFTC. There is a risk that individuals who face the greatest barriers to labor market participation suffer double jeopardy: they are unable to earn a living, and they risk losing public assistance if the situation persists for too long. Thus, a policy question to consider is what type of investment will create jobs for those who want to work but cannot find it.

Degree Name

Economics

Level of Degree

Masters

Department Name

Department of Economics

First Committee Member (Chair)

Kira Villa

Second Committee Member

Janie Chermak

Third Committee Member

Xiaoxue Li

Language

English

Keywords

EITC, WFTC, New Mexico Tax Policy, Poverty Alleviation Programs

Document Type

Thesis

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