Did Expanding the EITC Promote Motherhood?

Abstract

During the 1990’s the Earned Income Tax Credit (EITC) emerged as a primary means of providing income support for low-income families in the United States. In an effort to keep the program well targeted, the credit largely restricts eligibility to tax filers with children. One potentially unintended consequence of this design is that it might encourage childbearing. We raise the question of whether the EITC, through its generous benefits to families with children, actually increases fertility. We approach this topic for three reasons. The first is to expand upon an existing literature of economic incentives and fertility using the EITC expansion as a large exogenous variation in the price of childbearing. Findings in the welfare literature are inconclusive (Robert A. Moffitt, 1998), and the income tax literature typically finds small, but statistically significant effects of the income-tax system on fertility behavior (e.g., Leslie A. Whittington et al., 1990). Second, declining fertility rates in many Western counties raise the general issue of whether the tax system can be used as a tool for encouraging fertility. Finally, by considering the link between the EITC and fertility, we question a common, yet untested, assumption in the literature on the EITC and the labor supply of single parents: that the presence of a child is exogenous to the value of the EITC.