Earned income tax credit and heterogenous agent dynamic stochastic general equilibrium model

Jong Suk Han, Sun Bin Kim, Yongsung Chang

Research output: Contribution to journalArticlepeer-review

Abstract

As the Earned Income Tax Credit(EITC) massively expanded in 2019, 20% of total households benefit from the credit. Due to this large reform, we expect that any future reform will also largely affect the aggregate economy; thus, the heterogeneous agent life cycle dynamic stochastic general equilibrium (HA-LC-DSGE) model will be widely used in future research. This paper re-views the EITC reforms in Korea since the first implementation and surveys the previous studies, examining the labor supply effects. We address why the HA-LC-DSGE model is necessary to examine the current EITC system in Korea. Then, we provide an example of the HA-LC-DSGE model with a policy sim-ulation of the EITC expansion and explain the model’s salient ingredients to understand the results.

Original languageEnglish
Pages (from-to)80-115
Number of pages36
JournalJournal of Economic Theory and Econometrics
Volume32
Issue number1
Publication statusPublished - 2021

Bibliographical note

Funding Information:
∗The authors are grateful to the editor Noh-Sun Kwark, co-editor Young Se Kim, and two anonymous referees for their helpful comments. This work was supported by grants from the National Research Foundation of Korea funded by the Korean Government (2019S1A5A2A03043067).

Publisher Copyright:
© 2021, Korean Econometric Society. All rights reserved.

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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