The Impact of the Earned Income Tax Credit on Household Finances

Lauren E. Jones, Katherine Michelmore

Research output: Contribution to journalArticle

9 Scopus citations

Abstract

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.

Original languageEnglish (US)
Pages (from-to)521-545
Number of pages25
JournalJournal of Policy Analysis and Management
Volume37
Issue number3
DOIs
StatePublished - Jun 1 2018

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Sociology and Political Science
  • Public Administration

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