TY - JOUR
T1 - The Impact of the Earned Income Tax Credit on Household Finances
AU - Jones, Lauren E.
AU - Michelmore, Katherine
N1 - Funding Information:
The authors wish to thank Quentin Brummet, Jacob Goldin, Tatiana Homonoff, Leonard Lopoo, Mike Lovenheim, Luke Shaefer, Stefanie Stancheva, Tansel Yilmazer, Gal Zauberman, and seminar participants at The Ohio State University, the University of Michigan, and the University of Toronto for helpful comments. Michelmore also acknowledges financial support from the Institute of Education Sciences, for support on grant R305B110001. Any remaining errors are our own.
PY - 2018/6/1
Y1 - 2018/6/1
N2 - Using a simulated instrument strategy, we analyze how expansions to the federal and state Earned Income Tax Credits (EITC) affected household finances over the past two decades. Using data from the Survey of Income and Program Participation wealth topical modules, we also test whether responses differ over time, as well as whether there are different responses to the federal and state expansions, and how responses vary by educational attainment. A $1,000 policy-induced increase in the average household EITC leads to a 3 percentage point increase in the likelihood of holding money in a savings or checking account, and approximately $700 more held in savings balances. These results are coupled with large increases in pre-tax family earnings. We also find some evidence of decreases in unsecured debt holdings. We interpret these results as further evidence that the EITC increases the financial stability of low-income single mothers.
AB - Using a simulated instrument strategy, we analyze how expansions to the federal and state Earned Income Tax Credits (EITC) affected household finances over the past two decades. Using data from the Survey of Income and Program Participation wealth topical modules, we also test whether responses differ over time, as well as whether there are different responses to the federal and state expansions, and how responses vary by educational attainment. A $1,000 policy-induced increase in the average household EITC leads to a 3 percentage point increase in the likelihood of holding money in a savings or checking account, and approximately $700 more held in savings balances. These results are coupled with large increases in pre-tax family earnings. We also find some evidence of decreases in unsecured debt holdings. We interpret these results as further evidence that the EITC increases the financial stability of low-income single mothers.
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U2 - 10.1002/pam.22062
DO - 10.1002/pam.22062
M3 - Article
AN - SCOPUS:85048686207
SN - 0276-8739
VL - 37
SP - 521
EP - 545
JO - Journal of Policy Analysis and Management
JF - Journal of Policy Analysis and Management
IS - 3
ER -