Earned Income Tax Credit Expansion Research Articles

The earned income tax credit and food insecurity

AbstractAlthough previous work on the earned income tax credit (EITC) has established that the program improves health outcomes of people from lower socioeconomic backgrounds, not much is known about the possible pathways through which higher EITC benefits affect health. This study contributes to the literature by evaluating the role of food insecurity as a mechanism underlying the relationship between the EITC and health. Using the 2009 federal EITC expansion, which increased benefit generosity for eligible families with three or more children, I estimate difference‐in‐differences (DD) and difference‐in‐difference‐in‐differences (DDD) models to evaluate whether the policy change is associated with improvements in food security. My analysis finds that the program expansion, which increased predicted annual EITC benefits by $496, is associated with a reduction in the likelihood of experiencing food insecurity by 8.1% for low‐educated households with three children. The observed improvements in food security are larger for non‐married households, a group that has previously been shown to be strongly affected by EITC changes. An evaluation of variations in state‐level EITC laws provides further indication that more generous benefits reduce food insecurity. The results, which are robust to estimating several alternative specifications, provide evidence that higher EITC benefits improve the well‐being of low‐income households by reducing food insecurity.

The Earned Income Tax Credit and Maternal Time Use: More Time Working and Less Time with Kids?

Parents spend considerable time and resources investing in their children's development. Given evidence that the Earned Income Tax Credit (EITC) aects maternal labor supply, we investigate how the EITC affects a broad array of time-use activities, focusing on the amount and nature of time spent with children. Using 2003-2018 time-use data, we find that federal and state EITC expansions increase maternal work time, which reduces time devoted to home production, leisure, and time with children. However, for children of all ages, almost none of the reduction comes from time devoted to investment activities, such as active learning and development activities.

Employment Effects of the Earned Income Tax Credit: Taking the Long View

The earned income tax credit (EITC) is the cornerstone US anti-poverty program for families with children, typically lifting millions of children out of poverty each year. Targeted to low-income households with children and only available to those who work, the EITC contains strong incentives for nonworkers to become employed. Most of the existing economics literature focuses on federal EITC expansions in the 1980s and 1990s. This paper takes a longer view, studying all federal expansions since the program’s inception in 1975. We find robust evidence that EITC expansions increase the extensive margin of labor supply.

Earned Income Tax Credit and Heterogenous Agent Dynamic Stochastic General Equilibrium Model

As the Earned Income Tax Credit(EITC) massively expanded in 2019, 20% of total households benefit from the credit. Due to this large reform, we expect that any future reform will also largely affect the aggregate economy; thus, the heterogeneous agent life cycle dynamic stochastic general equilibrium (HA-LC-DSGE) model will be widely used in future research. This paper reviews the EITC reforms in Korea since the first implementation and surveys the previous studies, examining the labor supply effects. We address why the HA-LC-DSGE model is necessary to examine the current EITC system in Korea. Then, we provide an example of the HA-LC-DSGE model with a policy simulation of the EITC expansion and explain the model's salient ingredients to understand the results.

Credit where it is due: Investigating pathways from earned income tax credit expansion to maternal mental health.

While earned income tax credit (EITC) expansions are typically associated with improvements in maternal mental health, little is known about the mechanisms through which the program affects this outcome. The EITC could primarily affect mental health through changes in family financial resources, changes in labor supply or changes in health insurance coverage of participants. We attempt to disentangle these mechanisms by assessing the effects of state and federal EITC expansion on mental health, employment, and health insurance by maternal marital status. We find that federal EITC expansions are associated with improved self-reported mental health for all mothers and large positive effects on employment for unmarried mothers. State EITC expansions are associated with improvements in mental health for married mothers only and have no effect on employment for married or unmarried mothers. Overall and for most subgroups of mothers, we find little association between EITC expansions and changes in health insurance coverage. These findings suggest that while EITC expansions improved mental health for unmarried mothers through a combination of the credit and employment effects, for married mothers, improved mental health is driven through the direct credit alone.

THE EITC AND EMPLOYMENT TRANSITIONS

Many low-income households experience high-frequency labor market transitions. It is unclear how the earned income tax credit (EITC) work incentives affect these frequent entry and exit decisions. Exploiting the panel nature of the Current Population Survey (CPS), I show that EITC expansions induce less-educated single women with previous work experience to work more months, leading to more annual weeks worked and less annual exit, suggesting the EITC operates, in part, by keeping previously employed single women in the labor force. Employment responds to changes in the previous year’s EITC, consistent with people learning about how the returns to work have changed and then responding.

Employment Effects of the Earned Income Tax Credit: Taking the Long View

The Earned Income Tax Credit (EITC) is the cornerstone U.S. anti-poverty program for families with children, typically lifting millions of children out of poverty each year. Targeted to low-income households with children, and only available to those who work, the EITC contains strong incentives for non-workers to become employed. Most of the existing economics literature focuses on federal EITC expansions in the 1980s and 1990s. This paper takes a longer view, studying all federal expansions since the program’s inception in 1975. We find robust evidence that EITC expansions increase the extensive margin of labor supply. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

The Earned Income Tax Credit and Maternal Time Use: More Time Working and Less Time with Kids?

Parents spend considerable sums investing in their children’s development, with their own time among the most important forms of investment. Given well-documented effects of the Earned Income Tax Credit (EITC) on maternal labor supply, it is natural to ask how the EITC affects other time allocation decisions, especially time with children. We use the American Time Use Surveys to study the effects of EITC expansions since 2003 on time devoted to a broad array of activities, with considerable attention to the amount and nature of time spent with children. Our results confirm prior evidence that the EITC increases maternal work and reduces time devoted to home production and leisure. More novel, we show that the EITC also reduces time spent with children; however, almost none of the reduction comes from time devoted to “investment” activities. Effects are concentrated among socioeconomically disadvantaged mothers, especially those that are unmarried. Results are also most apparent for mothers of young children. Altogether, our results suggest that the increased work associated with EITC expansions over time has done little to reduce the time mothers devote to active learning and development activities with their children.

The EITC and Maternal Time Use: More Time Working and Less Time with Kids?

Parents spend considerable sums investing in their children's development, with their own time among the most important forms of investment. Given well-documented effects of the Earned Income Tax Credit (EITC) on maternal labor supply, it is natural to ask how the EITC affects other time allocation decisions, especially time with children. We use the American Time Use Surveys to study the effects of EITC expansions since 2003 on time devoted to a broad array of activities, with considerable attention to the amount and nature of time spent with children. Our results confirm prior evidence that the EITC increases maternal work and reduces time devoted to home production and leisure, especially among unmarried women. More novel, we show that the EITC also reduces time spent with children; however, almost none of this reduction comes from time devoted to active investment-related activities that are most likely to foster child development. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Long-Term Health Effect of Earned Income Tax Credit

Using decades of variation in the federal and state Earned Income Tax Credit (EITC) and the Panel Study of Income Dynamics (PSID) dataset, I examine the impact of exposure to EITC expansions in utero and during childhood on health outcomes in adulthood. In order to overcome the confounding relationship between family income and health outcomes, this study uses the maximum EITC benefit as the key variable. Reduced-form estimates show that EITC expansions had a positive impact on self-reported health status and other health measurements. Specifically, a $1000 increase in the maximum EITC exposure from ages 13 to 18 corresponds with a 0.125 point increase in the reported health status during adulthood. In addition, being exposed to EITC expansions in utero increases reported health status by 0.043 point. Relative to the range of reported health of 1 to 5 and the standard deviation of 0.97, these are very small effects. Nonetheless, these health effects are consequential, associating with increases in both family income and maternal labor supply. Labor supply induced time substitution effect competes with the income enhancement, with different relative impacts at different age intervals, creating a “U-shaped overall health consequence.

Effects of State-Level Earned Income Tax Credit Laws on Birth Outcomes by Race and Ethnicity.

Purpose: Health disparities persist in birth outcomes by mother's income, education, and race in the United States. Disadvantaged mothers may experience benefit from supplements to family income, such as the earned income tax credit (EITC). We examined the effects of state-level EITCs on birth outcomes among women with a high school education or less, stratified by race and ethnicity.Methods: A quasi-experimental multistate and multiyear difference-in-differences design is used to assess effects of the presence and generosity of 23 state-level EITC laws on birth outcomes from 1994 to 2013. The methods utilized the U.S. National Vital Statistics System birth data for the outcomes: birth weight, probability of low birth weight (LBW; <2500 g), and gestation weeks.Results: Across all subgroups, any level of state EITC is associated with better birth outcomes with the largest effects seen among states with more generous EITCs. Black mothers experience larger percentage point reductions in the probability of LBW and increases in gestation duration. Among mothers with a high school education or less, results translate into 3760 fewer LBW babies with black mothers and 8364 fewer LBW babies with white mothers per year at the most generous state EITC level (i.e., 10% or more of federal and refundable). Hispanic and non-Hispanic mothers display relatively similar effects.Conclusions: The EITC at the federal and state level is an effective policy tool to reduce poverty and improve birth outcomes across racial and ethnic subgroups. Given the historically higher risk among black mothers, state-level EITC expansions offer one policy option to address this persistent health disparity.

Credit Where it's Due: Investigating Pathways from EITC Expansion to Maternal Mental Health

While Earned Income Tax Credit (EITC) expansions are typically associated with improvements in maternal mental health, little is known about the mechanisms through which the program affects this outcome. The EITC could affect mental health through direct tax credit, changes in labor supply and changes in health insurance coverage of participants. To disentangle these mechanisms, we assess the effects of state and federal EITC expansion on mental health, employment and health insurance by maternal marital status. We find that federal EITC expansions are associated with 1) large positive effects on employment for unmarried mothers and 2) improved self-reported mental health for all mothers. State EITC expansion, which generate smaller changes in the effective wage rate, are associated with improvements in mental health for married mothers only and have no effect on employment for married or unmarried mothers. We find no impact of EITC expansions on health insurance coverage for married or unmarried mothers. These findings suggest that while EITC expansions improved mental health for unmarried mothers through a combination of the credit and employment, for married mothers, improved mental health is driven through the direct credit alone.

The EITC and Employment Transitions: Labor Force Attachment, Annual Exit, and the Role of Information

Many low-income households experience high frequency labor market transitions. It is unclear how the Earned Income Tax Credit (EITC) work incentives affect these frequent entry and exit decisions. Exploiting the panel nature of the Current Population Survey, I show that EITC expansions induce less-educated single women with previous work experience to work more months, leading to more annual weeks worked and less annual exit, suggesting the EITC operates in part by keeping previously employed single women in the labor force. Employment responds to changes in the previous year's EITC, consistent with people responding to information about the returns to work.

The Long-Term Impact of the Earned Income Tax Credit on Children’s Education and Employment Outcomes

Using 4 decades of variation in the federal and state Earned Income Tax Credit (EITC), we estimate the impact of exposure to EITC expansions in childhood on education and employment outcomes in adu...

Money vs. Time: Family Income, Maternal Labor Supply, and Child Development

This paper analyzes the relationship between work-promoting policies and child development. First, we provide new comprehensive evidence of the unintended consequences for child development of the Earned Income Tax Credit expansions during the 1990s in the United States. Second, our theory-driven empirical model reconciles this result by shedding light on the trade-off between the income effect (economic resources) and the substitution effect (time and quality of the parent-child interactions) on a child's cognitive and behavioral development. This money versus time trade-off is most pronounced for disadvantaged mothers. Overall, our results call for a policy debate on how to design targeted supplements for disadvantaged families to support working mothers and their children.

Foster care and the earned income tax credit

Foster care is a source of significant costs to both governments and foster children. Policies that provide income support to households potentially reduce entry into foster care via reducing child maltreatment and improving child behavior. As part of the American Recovery and Reinvestment Act in 2009 (ARRA2009), the federal government expanded the earned income tax credit (EITC), which is an important income support program for low-income working households. Using state-level data, we investigate the impact of this EITC expansion on state-level foster care entry rates. Typically, states with state-level EITC match federal EITC spending at a specific rate, meaning that increases in federal EITC spending increase state-level spending as well. We find that expansion of EITC decreased foster care entry rates by 7.43% per year in states with a state-level EITC, relative to those without. In models that separately examine foster care entry rates by age of the child, we find that the ARRA2009 had different effects on foster care entry based on the child’s age. We find that ARRA2009 decreased foster care entry rates for children age 11–15 by nearly 12% in states with a state EITC and it decreased foster care entry rates for children age 16–20 by roughly 17% in states with a state EITC, relative to states without a state EITC.

The EITC and the labor supply of adult dependents: direct effects and family income effects

Tax data suggest that the population of adult dependents—adults relying on the support of others for the majority of their financial needs—has more than doubled over the last decade. However, little is known about how taxes affect the labor supply decisions of this population. This paper provides an initial investigation, studying the impact of the Earned Income Tax Credit (EITC) expansions of the early 1990s on the labor supply of adult dependents living with their relatives. I find that dependent individuals who were not a part of the nuclear family responded to the EITC expansions, increasing labor force participation by about 5 percentage points. For adult children, I show that the absence of a net response is likely due to an unexpected consequence of the EITC: expanded family credits led to a decrease in their labor force participation.

Effects of Higher EITC Payments on Children’s Health, Quality of Home Environment, and Noncognitive Skills

In 1993, the benefit levels of the earned income tax credit (EITC) were changed significantly based on the number of children in the household. Exploiting this policy change and employing a difference-in-differences plus mother fixed effects framework, we find significantly improved home environment quality for children of unmarried mothers, regardless of their race/ethnicity, and lowered probabilities of having accidents and improved mother-rated health for children of married white mothers. Children of unmarried black and Hispanic mothers also had better mother-rated health. Our results provide new evidence of positive spillover effects of the 1993 EITC expansion and therefore have important policy implications.

The earned income tax credit, mental health, and happiness

We study the impact of the earned income tax credit (EITC) on various measures of subjective well-being (SWB) using the National Survey of Families and Households (NSFH) to estimate intent-to-treat effects of the EITC expansion embedded in the 1990 Omnibus Budget Reconciliation Act. We use a difference-in-differences framework that compares the pre-and post-expansion SWB-changes of women likely eligible for the EITC (low-skilled mothers of working age) to the SWB-changes of a comparison group that is likely ineligible (low-skilled, childless women of working age). Our results suggest that the EITC expansion generated sizeable SWB-improvements in the three major categories of SWB identified in the literature. The NSFH is one of few datasets containing all three major categories of SWB. Subgroup analyses by marital status suggest that improvements accrued more to married than unmarried mothers. Relative to their childless counterparts, married mothers experienced a 15.7% decrease in depression symptomatology (experiential SWB), a 4.4% increase in happiness (evaluative SWB), and a 10.1% increase in self-esteem (eudemonic SWB). We also present specification checks that increase confidence that the observed SWB-effects are explained by the OBRA90 EITC expansion. Lastly, we explore mechanisms that may explain the differential impact of the EITC expansion by marital status.

The Effect of EITC Expansion on Health: A Different Approach to Income Gradient in Health

This study investigates the validity of previous findings of a positive relationship between income and health. This paper differs from previous studies in three ways. First, it directly accounts for potential income endogeneity by exploiting expansions of the Earned Income Tax Credit (EITC) as exogenous income variations. Second, this study offers a more accurate identification of affected individuals by obtaining simulated EITC benefits. I find that the expansion positively impacts health, especially when allowing it to adjust for some time. Third, this study provides evidence that insurance coverage and food expenditures are potential mechanisms underlying the income gradient in health.