Poster Paper: The Earned Income Tax Credit, Health, and Happiness

Friday, November 9, 2012
Liberty A & B (Sheraton Baltimore City Center Hotel)

*Names in bold indicate Presenter

Casey Boyd-Swan1, Chris M. Herbst1, John Ifcher2 and Homa Zarghamee2, (1)Arizona State University, (2)Santa Clara University

Over the last two decades, a large body of research has examined the impact of the Earned Income Tax Credit (EITC) on outcomes related to employment, income, marriage, and fertility. However, significantly less attention has been paid to the ways in which EITC expansions have influenced recipients’ health and well-being. This is precisely the aim of the current paper. In particular, we draw on data from the National Survey of Families and Households (NSFH) to study the impact of the 1990 EITC expansion (i.e., the Omnibus Budget Reconciliation Act of 1990) on the subjective well-being, physical health, and mental health of low-skilled single and married mothers.

For several reasons, the NSFH is ideal for the purposes of this study. First, separate waves of data collection were initiated just before and after the 1990 EITC expansion, enabling us to observe changes in well-being due to the specific policy change. Second, the NSFH is designed as a panel survey, which provides us with repeated observations for most individuals in the sample. This data structure allows us to account for individual-specific time-invariant unobserved heterogeneity. To our knowledge, this paper is the first in the EITC literature to use panel data. Third, the NSFH provides a rich set of well-being outcomes, ranging from self-reported happiness and overall physical health to a multi-item scale of depression. Finally, unlike most surveys used to evaluate the EITC, the NSFH asks detailed questions about household composition and relationship status. This information will allow us to construct a more nuanced measure of the tax unit, and in particular ensure that children in the household can serve as valid “qualifying” children.

We identify the impact of the EITC using a difference-in-differences model that compares the change in well-being among low-skilled single/married mothers before and after the 1990 EITC expansion to change experienced by several comparison groups. We also rely on an individual fixed effects estimator to further purge the estimates of unobserved heterogeneity. Our preliminary results suggest that EITC has mostly beneficial effects on mothers’ well-being. Following the implementation of the 1990 expansion, low-skilled mothers were happier, reported higher levels of overall physical condition, and scored lower on the depression scale.