This paper examines the impact of Korea’s Earned Income Tax Credit(EITC) and Child Tax Credit(CTC) on the labor force participation and hours of work of mothers with young children. Korea’s EITC started in 2009, and it expanded several times in 2012, 2014, and 2015. Using a Panel Study of Korean Children(PSKC) from 2009 to 2019, I explore two research questions: (i) the impact of EITC expansions in 2012 (2009-2013) on the labor supply of mothers with young children, and (ii) the impact of the EITC and CTC expansions in 2014-2019 on the labor supply of mothers with young children. I divided the time frame before and after 2013 as there was a structural change in the EITC between 2013 and 2014.
To analyze the first research question, I used a difference-in-differences(DID) approach, using asset-value conditions for the EITC eligibility. For the treatment group I used mothers whose value of assets is lower than $0.1 million, and eligible for the EITC, and for the contorl group, mothers whose value of assets is higher than $0.1 million. From the analysis, I found that the 2012 EITC expansion did not have a significant impact on the labor supply of mothers. I also cannot find siginificnat impacts on the labor supply of fathers, and household income and consumption.
For the second research question, I used several changes in the EITC's maximum benefits including the introduction of the CTC in 2015. From the analysis, I found that there were small but significant impacts on the labor supply{$100 increase in the tax credits results in 0.51% and hours of work by 2 hours).
My paper contributes to the EITC and CTC literature by considering recipients who receive the two tax credits, which will give some suggestions on policy mix. In addition, this paper contributes to the literature by exploring the role of tax credits in increasing the labor supply of mothers with young children, which has been rarely explored.