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External Publication: Earned Income Tax Credit (Negative Income Tax) –– The results of the first year of implementation of the Law

  Full Publication - Hebrew (On the Bank of Israel website)


At the end of the first year of operation of the Earned Income Tax Credit (EITC, negative income tax) program in Israel, this report summarizes the results and the experience gained from it. The summary of the experiment and the associated research was carried out by a joint research team, headed by Dr Michel Strawczynski of the Bank of Israel's Research Department,  established to provide research support for the process of implementing the socioeconomic agenda adopted by the (previous) government. The report was compiled by representatives of the Bank of Israel, the Myers–JDC–Brookdale Institute, the National Insurance Institute, and the Israel Tax Authority.

EITC is a policy tool for reducing gaps and improving the income of the working population at the bottom of the income scale. It was introduced in Israel on an experimental basis in 2008, in areas where the "lights to employment" program was operating (Ashkelon, Hadera, Jerusalem and Nazareth), and was based on earned income in 2007. The report includes the details of the Law, including the target population and the entitlement conditions, the rate of participation in different sections of the population and in different areas, and the effect that the EITC had on
the income of those participants who realized their entitlement, and its effect on the incidence and depth of poverty among them. The report also shows the proportion of total payments made that reached the group that most needed them––workers from families whose income was at the bottom of the scale. As the program was launched on the basis of income earned in 2007, a year before the Law went into effect, it is too
early to examine whether the implementation of the program affected employment patterns of the target population.

To examine the effect of the EITC a special survey was organized to learn about the relevant population in the areas in which it was operating, and a control group was selected with characteristics similar to those of the target population but resident in locations where the program was not being run. Changes in the entitled population were compared with those in the control group. In addition, extensive use was made of Tax Authority data which enabled the team to identify those apparently entitled to participate in the program and to examine their rate of participation. The objective of the research was to review the effect of the program on poverty and employment, and to analyze the extent to which those who were entitled to participate took up their entitlement in full.

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