In this paper we characterize the optimal linear and piecewise linear EITC schedule. In the linear framework we demonstrate that in the presence of unemployment, an increase of social inequality aversion and a decrease in labor aversion both derive in a lower optimal EITC. For the piecewise...

Governments implementing an Earned Income Tax Credit (EITC) aim at increasing Working Poor's propensity to work, in order to alleviate poverty. If this goal is attained in the long-run: shall the optimal EITC increase or decrease? We deal with this question using simulations with endogenous...