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.