The earned income tax credit and union formation: The impact of expected spouse earnings

Using the Survey of Income and Program Participation from 2001, 2004, and 2008 and federal and state variation in earned income tax credit generosity over time, I investigate how changes in expected household earned income tax credit benefits associated with marriage affect cohabitation and marriage behavior among low-income single mothers. I simulate a marriage market to predict potential spouse earnings for a sample of single mothers in order to estimate the potential losses or gains in earned income tax credit benefits upon marriage. Using multinomial logistic regressions, I then analyze how the anticipated loss in earned income tax credit benefits upon marriage affects the likelihood of marrying or cohabiting. Results suggest that the average earned income tax credit-eligible woman can expect to lose approximately US$1,300 in earned income tax credit benefits in the year following marriage, or about half of pre-marriage benefits. Single mothers who expect to lose earned income tax credit benefits upon marriage are 2.5 percentage points less likely to marry their partners and 2.5 percentage points more likely to cohabit compared to single mothers who expect no change or to gain earned income tax credit benefits upon marriage. Despite recent policy efforts to reduce the size of the marriage penalty embedded in the earned income tax credit structure, these results suggest that the earned income tax credit still creates distortions in marriage and cohabitation decisions among low-income single mothers.