The EITC and self-employment among married mothers

This paper analyzes the impact of the earned income tax credit (EITC) on low-income, non-college educated married mothers’ self-employment behavior. We use a parameterized difference-in-differences approach that captures policy changes at the federal and state level over the last two decades to analyze how the increasing generosity of the EITC has affected married women's self-employment. Results suggest that the average increase in state EITC benefits during that time period increased self-employment behavior of low-income, non-college educated married mothers by 0.9 percentage points. Our measure of self-employment reflects hours spent in self-employment, which we interpret as a real increase in self-employment effort rather than a change in reporting. The findings provide evidence that the EITC can influence workers’ type of employment in addition to their overall labor supply.