Question: Consider a country with no income maintenance program that enacts an Earned Income Tax Credit similar to the US.
a) Among all working people, will this program lead to a reduction in hours worked? prove your answer either graphically or mathematically. state all assumptions.
b) What are the expected effects on labor force participation according to your model?
c) What does empirical evidence on the U.S. experience with the Earned Income Tax Credit predict will be the effect of the new policy?