Educational Attainment and Income Inequality: Evidence from the Earned Income Tax Credit

Katherine Michelmore, Cornell University

As of the 2005, the gap in college enrollment between the highest income quartile and the lowest income quartile was over 40 percentage points (Lovenheim 2011). While there have been many studies analyzing the impact of various government programs aimed at increasing college enrollment among moderate-income households, the Earned Income Tax Credit (EITC) has largely been overlooked as a potential source for financial aid. As of 2011, the EITC was worth up to $5,751- higher than the Hope Tax Credit and the Lifetime Learning Credit combined. In this paper, I use variation in the timing and size of state EITC benefits to analyze how an increase in household income affects the educational attainment of low-income children. Preliminary results suggest that with the introduction of a 10% state EITC, low-income teens are 2 percentage points more likely to finish high school and 1.5 percentage points more likely to enroll in college.