Reference no: EM13733831

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 difference by family size. Why or why not. Explain.

2. Construct variables for difference-in-difference 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 differences 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 differ?

(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 "filing 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 difference" 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 difference" in a regression framework. What do you find? 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 differences 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 differ by group.

5. Calculate the unconditional difference-in-differences estimates of the effect 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 effect? How does it compare to the magnitude of the treatment effect in EL? Do you expect the 1993 expansion to generate larger or smaller effects compared to the 1986 expansion? Why?

(Use the specification 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 difference-in-differences estimates by allowing the treatment effects 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 effect is larger?

7. Estimate conditional difference-in-differences by running PROBIT regressions as in EL Table III. Estimate model labeled WITHOUT COVARIATES in column (1). What is the treatment effect? How does it compare to the unconditional treatment effect that you found in part (6). Is the what you expected? Why or why not? What is the interpretation of the coefficient on KIDS. What about POST93? (Please report dp/dx values for the probit.)