A Proposed Earned Income Tax Credit Program in Taiwan: Its Simulated Impacts on Labor Supply
Date Issued
2009
Date
2009
Author(s)
Chen, Chi-Tien
Abstract
The gap between rich and poor in Taiwan keeps getting wider over the past few years. According to the Gini Coefficient and the gap between top-20 to bottom-20 of income distribution, the gap became to worsen most seriously in 2001 and gradually to be improved later. Year by year, the percentage of low income families in total families increases gradually. Analyzing the structure between rich and poor, we find that even more and more families fall into the poverty line, but the extremely poor families becomes less. Comparing with other countries of the world, the problem of rich-poor gap in Taiwan is not serious. But we still should pay attention to it. During the President Campaign in 2008, Mr. Ma proposed the EITC policy to secure the middle-class families from the edge of the poverty line. This study investigates the implementation effect of the EITC policy in United States, United Kingdom, and South Korea respectively. In the empirical analysis, the research data source is from the Manpower Utilization Survey of DGBAS of Executive Yuan. The research object is the household with minor children of Taiwan. In this study, the Tobit model is used to investigate whether the implementation of EITC would raise the labor supply. Comparing the implementation of EITC among the investigated countries, we suggest that the system in United States is more suitable for Taiwan. The system includes three steps that are the phase-in range, the plateau range, and the phase-out range. Besides, the rate of phase-in range should be higher than that of phase-out. This would encourage people to get a job. The object of supplement is the household whose family member is more than two. The applicants do not need the annual labor insurance for qualification and the anti-corruption clause is included in this system. Some specific households such as the rich people, the single, the household without minor children, the household with parents over 65 years old, or with other relatives should be excluded in the supplement system. The system should be planed in a conservative way to control its budget because this welfare expenditure is possible to expand enormously later. The empirical result shows that the salary effects the working hour significantly in logarithm. The regression coefficient in the model is positive. That means the implement of EITC may increase the labor supply. The labor elasticity for female is 0.18 that is more than the male’s 0.12.
Subjects
EITC
WFTC
Negative Income Tax
Personal Income Tax
Type
thesis
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ntu-98-P95323017-1.pdf
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