Exam 21: Taxes on Labor Supply

The textbook discusses a paper by Nada Eissa and Jeffrey Leibman that examines the effect of the Earned Income Tax Credit on the single mother labor supply.The paper addresses the fact that some expansions of the program were modest for families with only one child but much larger for families with two or more children.Thus,the researchers used a difference-in-difference strategy to compare the labor supply of single mothers with two or more children with the labor supply of single mothers with only one child. (a)What type of empirical strategy is this? (b)What is the study group (or treatment group)and what is the control group? (c)Suppose that over this period,employers become more willing to hire and accommodate single mothers.Would this fact bias the estimates? Explain.

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