Thursday, March 7, 2013
Day Manoli (UCLA, Department of Economics) presents The EITC Goes to College: Evidence Based on Income Tax Data and Policy Nonlinearities at UCLA today as part of its Tax Policy and Public Finance Colloquium hosted by Jason Oh and Kirk Stark:
This paper presents new evidence on the effects of disposable income (cash-on-hand) on college enrollment decisions. We use population-level, administrative data from United States income tax returns to estimate the effects of refundable tax credits, most notably the Earned Income Tax Credit (EITC), on college enrollment. The sample includes over 15 million dependent children during their senior year of high school from 2001-2010. We use a Regression Kink Design to estimate the effects of tax refunds on enrollment. This research design exploits kinks in the schedule of refundable credits by income and relates the change in the slope of the refund-income profile to a corresponding change in the slope of enrollment-income profile. We present nonparametric graphical evidence illustrating changes in the probability of enrolling in college at the same earnings levels that correspond to the kinks in the refundable credit schedule. Regression results indicate that a $1,000 increase in tax refunds around the first kink in the EITC schedule leads to an increase in college enrollment by 1-2 percentage points (5-10 percent).