THE INTERACTION OF METROPOLITAN COST-OF-LIVING AND THE FEDERAL EARNED INCOME TAX CREDIT: ONE SIZE FITS ALL?

This paper explores the interaction between the federal Earned Income Tax Credit (EITC) and the cost-of-living faced by single mothers. After the 1993 EITC expansion, we identify up to an 8 percentage point increase in labor force participation for single mothers in the lowest cost areas but no discernible response in the highest cost areas. We conclude that the EITC's welfare-enhancing properties are undermined by the interaction of the program's fixed national rules and geographic variation in wages and the cost-of-living. In addition, our findings suggest that the EITC does little to reduce joblessness in many of the nation's largest cities.