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American Economic Journal: Economic Policy: Vol. 5 No. 2 (May 2013)

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The EITC, Tax Refunds, and Unemployment Spells

Article Citation

LaLumia, Sara. 2013. "The EITC, Tax Refunds, and Unemployment Spells." American Economic Journal: Economic Policy, 5(2): 188-221.

DOI: 10.1257/pol.5.2.188

Abstract

The earned income tax credit generates large average tax refunds for low-income parents, and these refunds are distributed in a narrow time frame. I rely on this plausibly exogenous source of variation in liquidity to investigate the effect of cash on hand on unemployment duration. Among EITC-eligible women, unemployment spells beginning just after tax refund receipt last longer than unemployment spells beginning at other times of year. There is no evidence that tax refund receipt is associated with longer unemployment duration for men, or that the longer durations for women are associated with higher-quality subsequent job matches. (JEL H24, J64)

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Authors

LaLumia, Sara (Williams College)

JEL Classifications

H24: Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
J64: Unemployment: Models, Duration, Incidence, and Job Search

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