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The Impact of the Earned Income Tax Credit on Household Finances
Author(s) -
Jones Lauren E.,
Michelmore Katherine
Publication year - 2018
Publication title -
journal of policy analysis and management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.898
H-Index - 84
eISSN - 1520-6688
pISSN - 0276-8739
DOI - 10.1002/pam.22062
Subject(s) - earned income tax credit , earnings , economics , debt , point (geometry) , survey of income and program participation , labour economics , national longitudinal surveys , educational attainment , tax credit , income tax , demographic economics , public economics , finance , economic growth , geometry , mathematics
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.