Describe the 1993 expansion of the eitc

Reference no: EM13733293

1. Describe the 1993 expansion of the EITC. What does theory predict about the impact of this EITC expansion on the labor supply of single women with children? Discuss the predictions. Would you expect a dierence by family size. Why or why not. Explain.

2. Construct variables for dierence-in-dierence analysis as in EL equation 1. You will need a variable for the \treatment" (call it \anykids") and for after the expansion (call it \post93"). Calculate the sample means by presence of children as in Table 1 of EL.

Discuss the dierences in the sample between single women with and without children. Calculate sample means separately for single women with 1 versus 2 or more children. How do the sample dier?

(Don't worry about the variables that are in EL that are not in the input data set. The variables in their Table I that you do not have: preschool children, weekly participation, and hours of work. You can create \ling unit size = number of children + 1 (for the woman)". You can create earnings conditional on work from earnings.)

3. Estimate the impacts of the EITC on employment using a \single dierence" model. In particular, take one after year (1996) and compare the employment of single women with kids to single women without kids. Estimate the unconditional \single dierence" in a regression framework. What do you nd? Given the information above, how might this estimate be biased?

4. Create a graph with plots mean annual employment rates by year (1991-1996) for single women with children (treatment) and single women without children (control). Discuss the dierences that show up in the graph. Use this information to critique the validity of using single women without children as the control group. In particular, examine the \pre-treatment" trends and how they dier by group.

5. Calculate the unconditional dierence-in-dierences estimates of the eect of 1993 EITC expansion on employment of single women as in EL Table II. Also calculate the standard errors. Organize your table as in EL Table II. Explain your results. What is the estimated treatment eect? How does it compare to the magnitude of the treat- ment eect in EL? Do you expect the 1993 expansion to generate larger or smaller eects compared to the 1986 expansion? Why?

(Use the specication in EL Table II, Panel B, Control group 1. Treatment group is less than high school single women with children; the control group is less than high school single women without children. Before is 91-93, after is 94-06.)

6. Recalculate the unconditional dierence-in-dierences estimates by allowing the treat- ment eects to vary for those with 1 and 2 or more children. Again organize your results as in EL Table II. This amounts to considering one treatment group at a time, the control group in both cases is single women without children. Which treatment eect is larger?

7. Estimate conditional dierence-in-dierences by running PROBIT regressions as in EL Table III. Estimate model labeled WITHOUT COVARIATES in column (1). What is the treatment eect? How does it compare to the unconditional treatment eect that you found in part (6). Is the what you expected? Why or why not? What is the interpretation of the coecient on KIDS. What about POST93?

Reference no: EM13733293

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