Panel Paper: The Long-Term Effects of Childhood Exposure to the Earned Income Tax Credit on Health Outcomes

Saturday, November 9, 2019
I.M Pei Tower: Majestic Level, Majestic Ballroom (Sheraton Denver Downtown)

*Names in bold indicate Presenter

Breno Braga, Fredric Blavin and Anuj Gangopadhyaya, Urban Institute

The Earned Income Tax Credit (EITC) is a central component of the U.S. safety net, benefiting more than 27 million low and moderate-income families in 2017. By providing eligible working families with refundable tax credits and incentivizing work, the EITC substantially increases family income for children in low-income families, which may affect their long-term human capital development, including their health trajectory.

This paper evaluates the long-term impact of exposure to EITC programs during childhood on health outcomes later in life between ages 22 and 27. We use data from the 1968 to 2015 waves of the Panel Study of Income Dynamics (PSID) and implement a difference-in-differences design that exploits the variation of EITC changes across states, years, and eligibility groups. Consistent with the literature, we define EITC exposure in childhood as the maximum federal and state EITC benefits that a child’s family could potentially receive from the child’s birth to age 18. We control for family characteristics, state demographic changes, and state economic and policy changes during the analysis period.

We find that EITC exposure during childhood is associated with better self-reported health status and lower likelihood of obesity in early adulthood; An additional $100 in average EITC exposure during ages 0 to 18 increases the likelihood of reporting good or excellent health by 2.7 percentage points (4.1 percent) and decreases the likelihood of being obese by 1.0 percentage points (5.1 percent) between ages 22 and 27. We also estimate that EITC exposure is associated with a lower likelihood of having a functional limitation at later ages, although this finding is only marginally significant. We find no significant association between EITC exposure in childhood and emotional problems or high blood pressure at later ages, although the direction of our estimates is consistent with EITC improving these outcomes as well.

Children who grew up in single-parent households are most affected by EITC exposure. Among this group, an additional $100 in average EITC exposure during ages 0 to 18 increases the likelihood of reporting good or excellent health by 8.1 percent and decreases the likelihood of being obese by 7.7 percent at ages 22 to 27. Similarly, we find stronger effects of EITC exposure on children of low-educated and low-income parents, as those families are more likely to participate in the program.

To investigate the potential mechanisms, we look at the effect of EITC exposure at different intermediate outcomes during the childhood years of the individuals in our sample. EITC exposure is associated with increases in direct EITC transfers, pretax family earnings, and health insurance coverage, all of which are likely to improve later life health outcomes. We find no statistically significant evidence that parents spend less time with their children in response to additional EITC exposure. Overall, our study provides important findings for evaluating the long-terms benefits of the EITC as well as the more general question of how childhood income affects long-term health.