The Self-Employment Effects of the EITC in the Gig Economy

The Earned Income Tax Credit (EITC) is designed to encourage work, but its impact on self-employment is often seen as changes in reporting, not real employment. This might not be surprising, because starting a business can be risky, uncertain, and logistically complicated, potentially keeping EITC-eligible workers from pursuing self-employment. However, gig platforms like Uber might reduce the barriers to entering self-employment. Exploiting state-level EITC policies and Uber’s market entry, I find that when Uber is operating in the market, the EITC leads to additional small, significant increases in real self-employment among single-headed households, shifting household income toward larger credits.