Association for Public Policy Analysis & Management

In the United States, the growing income inequalities are an ongoing concern. The Earned Income Tax Credit (EITC) is a large poverty-alleviation program aimed at addressing these inequalities by providing a cash transfer to low-income working individuals through the tax system. While the EITC exists in all states through the federal implementation of the program, only 29 states have adopted their own EITC. The Grossman (1972) model suggests that every individual is born with an initial health stock that is determined by maternal investments, such as medical care during the time of pregnancy. Women with higher income can make more investments and produce better health for their children. Thus, low-birth weight (LBW) - being born less than 2500g- becomes an important indicator of initial health stock and predicts future health outcomes. Studies have found that states that have adopted an EITC or have generous EITC payments have lower LBW rates. However, no study has formally tested multiple pathways through which increased tax credits affect birth outcomes.

The purpose of this study is to analyze the mechanisms through which state-level EITC affects LBW rates in the United States. Utilizing the 2016 restricted state-level vital statistics data, the study tests three mediation effects: maternal smoking, prenatal care use and stress. The analytical sample included only African American women (n=559,233) as they face the highest rates of adverse birth outcomes and form the majority of the low-income population. Using a PATH analysis, I simultaneously model the three hypothesized mediation effects controlling for nativity, adequate weight gain, marital status, education, number of children and body mass index. Preliminary results show that state adoption of an EITC is associated with a 6.2% (0.008) improvement in LBW amongst African American women, and this effect is mediated by prenatal care use and stress. However, state adoption of an EITC increased the likelihood of smoking during pregnancy [2.2% (0.0006)] but was associated with an increase in prenatal care use [3.3% (0.001)] and a reduction in stress [0.28% (0.001)]. The findings also reveal that stress has the highest mediation effect in the association of EITC and LBW.

The Healthy People 2020 cites poverty as a major determinant for adverse birth outcomes and has prioritized the reduction of LBW in its objectives. Understanding the mechanisms through which EITC operates is important for policymakers to understand how different outcomes are produced. The findings from this study suggest the need for enhanced smoking cessation programs amongst the African American population to reinforce the effects of the EITC.