THE LABOR SUPPLY OF SINGLE MOTHERS
calculate a variable called Income Taxes if Work. This variable is the expected taxes a woman would pay in a given state and year with a given family composition and ages of children. The expec- tation is calculated by integrating over the wage and hours dis- tribution of single women as described in Section II. Appendix 2 reports the mean of this variable for single mothers and single women without children for various years. Over the years 1984 – 1996 taxes paid by single mothers relative to single women with- out children fell by $1607. Thirty-nine percent of the relative fall in taxes (increase in credits) occurred in the last three years (1993–1996). About 43 percent occurred in 1987 and 1988, with 18 percent occurring between 1991 and 1993. Almost all of the fall in relative taxes was due to federal tax changes. Only $37 was due to state taxes, with all but $7 of this due to state EITCs. However, in the seven states with state EITCs the role of state taxes was much greater. In these jurisdictions, state EITCs ac- counted for a $215 drop in the taxes of single mothers relative to single women without children.
The theoretical effect of the EITC expansions on the annual participation decision of single parents is unambiguously posi- tive. Since the EITC expansions have increased the after-tax return to work at all earnings levels, work is unambiguously more attractive. The effect of the EITC and its expansions on the hours of work among those working is much less clear and de- pends on where a person would choose to work on the pre- and postcredit budget sets. Overall, the income effect of the credit combined with the negative substitution effect that people face on the phase-out portion of the credit is expected to reduce the hours of those who work. 14
B. AFDC, Food Stamps, and Waivers
The two programs that have been most commonly thought of as welfare are Aid to Families with Dependent Children (AFDC) and Food Stamps. We discuss Food Stamps along with AFDC
14. One might wonder whether households are aware of these tax incentives and bother to le tax returns. Awareness appears to be high [Romich and Weisner 2000; Smeeding et al. 2000], and EITC takeup appears to be high and rising. Scholz [1990, 1994] estimates takeup to be 75 percent in 1988 and between 80 and 86 percent in 1990. With the increases in the EITC after 1990 that raised the value of ling and disproportionately made eligible moderate income people who are likely to le, one might expect that the participation rate rose further. In addition, EITC awareness and outreach has increased in recent years. On the other hand, recent compliance efforts may have discouraged some potential lers.