EITC May Increase High‑School Dropouts

A ReStud paper exploits state borders and finds that larger state EITCs raise high‑school dropout rates. A life‑cycle model explains the mechanism: wage subsidies to low‑skill work lower the relative return to schooling, shifting the economy toward more low‑skill labor over time and potentially affecting productivity and inequality. — It challenges the bipartisan view of the EITC as an unambiguous good and suggests policymakers must weigh education and long‑run human‑capital effects in designing wage subsidies.

Sources

Why the Mexican Left Defunded Childcare Centers

Germán Saucedo 2026.01.06 80% relevant

Both pieces highlight that cash transfers and wage subsidies change behavior in ways policymakers may not anticipate: the EITC analysis shows wage subsidies can reduce schooling incentives, while AMLO’s childcare cash replaces institutional care and may reduce maternal labor-force participation or re‑privatize care—an example of how transfer design creates behavioral tradeoffs.

Is the earned income tax overrated?

Tyler Cowen 2025.10.09 100% relevant

Cowen summarizes Albertini, Poirier, and Terriau’s study showing a statistically significant dropout increase from state EITCs and modeling optimal EITC design.