Natasha V. Pilkauskas

Assessing the Effectiveness of Tax Credits in Early Childhood: The Earned Income Tax Credit, Child Tax Credit and Links with Poverty and Material Hardship

Research Project Description

Research Objectives: Poverty is especially detrimental to young children and as a result, a number of recent policy proposals have suggested increasing refundable tax credits aimed at families with children under the age of 6. Yet no research has studied whether current refundable tax credit policies, the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC), affect the economic wellbeing of families with young children differently than those with older children. If labor supply for parents with younger children is more inelastic, then increasing tax credits to young families may do little to improve their economic wellbeing. But if families with young children are more likely to be eligible for refundable tax credits (because of lower earnings) then increasing credits to families with young children might improve their economic wellbeing. We seek to address this gap in the literature by studying whether the EITC and ACTC impact the labor supply, poverty and material hardship (going without basic necessities) of families with young children differently than those with older children.

Data & Methods: Using longitudinal data from the Survey of Income and Program Participation (SIPP) and the Fragile Families and Child Wellbeing Study (FFCWS), we will employ a simulated instruments strategy to examine whether policy-induced expansions in the EITC and ACTC (exploiting federal and state policy variation over time by family size) affect the economic wellbeing of families with young children differently than those with older children. We will then use the simulated credits to instrument for own eligibility separately for each developmental age group (0-5, 6-12, 13-18). By using two large datasets we can take advantage of the relative strengths of each.

Importance to Child Poverty Policy: By understanding whether there are differences in the impact of refundable tax credits on labor supply, poverty and material hardship by the age of children in the household, we can better understand whether targeted increases in refundable tax credits will be effective at reducing childhood economic hardship.

Substance Abuse and Mental Health Services Administration
(subcontract: 1 H79 AE 000103 01)

Funding Period: 6/1/2017 to 9/29/2017

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