Bank of Israel backs negative income tax

In four-city pilot program, the negative income tax raised 4.5% of recipients out of poverty.

The Bank of Israel National Insurance Institute, the Israel Tax Authority and the MyersJDCBrookdale Institute support expanding the negative income tax nationwide. The joint research team today published its report on the first year of implementation of the Earned Income Tax Credit Law (EITC Law).

The report summarizes the experience gained in the first year of the implementation of the EITC program which was launched in September 2008 in Ashkelon, Hadera, Jerusalem and Nazareth. The EITC, or negative income tax, is awarded to low-income earners.

The report found that the negative income tax program helped to rescue about 4.5% of the recipients of the credit from poverty, it reduced the depth of poverty, expressed in terms of the poverty gap, by about 5%, and boosted the income of the bottom quintile of the recipients by some 12%. About 80% of the support went to families with children went to the lowest four deciles of the wage distribution.

The report also found that shows a decline among recipients of the credit of the share of those who had to give up essential services such as visits to a dentist, and the share whose telephones or electricity were cut off. It was found that poverty was higher among families with children (less than 19 years old) than among those aged more than 55 years without children.

The report stated, "Based on the experience and findings to date, it can be stated that EITC is a focused and effective tool that raises the level of income of the working low-paid population. It is more effective in reducing the incidence and depth of poverty among families with children than among those aged 55+. The credit also helps to improve the income of working families with income slightly above the poverty line."

Published by Globes [online], Israel business news - www.globes-online.com - on June 27, 2010

© Copyright of Globes Publisher Itonut (1983) Ltd. 2010

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