Optimal tax policy in imperfectly competitive U.S. labor markets

Grant description:

This project will explore the problem of implementing federal tax policy aimed at encouraging work when U.S. labor markets are imperfectly competitive. More specifically, this researcher will study the effect and optimal design of wage subsidies through the Earned Income Tax Credit in monopsonistic labor markets. In estimating the incidence of the EITC on both workers and firms, this research seeks to understand whether the purported inequality-combatting benefits of this federal tax credit are undermined by the capture of a large portion of the subsidy by employers. Because labor market power is known to vary considerably across place, and because exposure to concentrated markets varies by race and gender, this research will help to benchmark the effects of labor market power on places and demographic groups.