The Effects of Income on the Economic Well-being of Families with Low Incomes: Evidence from the 2021 Expanded Child Tax Credit

By Natasha Pilkauskas, Katherine Michelmore, and H. Luke Shaefer Download PDF of full policy brief. By Natasha Pilkauskas, Katherine Michelmore, and H. Luke Shaefer

Introduction

Interest in basic income and unconditional cash transfers as a means of improving well-being has grown substantially over the last few years in the United States. There remains much to learn about the causal effects of unconditional cash transfers despite a large evidence base suggesting that income, in-kind policies, and earnings supplements improve well-being. New evidence from randomized control trial studies of unconditional cash transfers find modest to null effects on material well-being, raising further questions about the causal link between cash transfers and material well-being. In contrast, a small but growing set of studies of a universal, recurring monthly unconditional cash transfer to families with children – the 2021 monthly Child Tax Credit (CTC) – suggests this policy improved the material well-being of families with children. In this brief, we add to this growing literature by summarizing the findings of a new study of the 2021 monthly Child Tax Credit. Unlike earlier research, our study focuses on families with very low incomes, those living in poverty. Using quasi-experimental techniques, we find robust evidence that the 2021 monthly CTC improved families’ material well-being and had little to no impact on their employment.

Key Findings

• Across six months in 2021, families reported using the monthly Child Tax Credit (CTC) on bills, other household expenses, and child-related expenses.
• We find robust evidence that the CTC reduced the overall number of material hardships experienced by families, particularly food insecurity.
• Other evidence suggests that the monthly CTC reduced medical hardships, inability to pay utility bills, and reliance on friends and family for food.
• We do not find a statistically significant relationship between the employment behaviors of families in our study and the monthly CTC benefit.

Note: * indicates findings are statistically significant and robust across models. + indicates findings do not reach conventical levels of statistical significance in our most stringent test; however, they are negatively signed and similar in size to the estimates with household size fixed-effects, which do reach conventional levels of statistical significance. Thus we consider these results as suggestive evidence. See the full paper for details on modeling approaches.

Conclusion

Our study focuses on a sample of families with very low incomes, who were most likely to gain access to the CTC in 2021. We find that families spent their monthly CTC on bills and expenses that should improve their material well-being. We also find that the monthly CTC reduced families’ overall number of material hardships and, in particular, their food insecurity. These findings are in keeping with other studies of the effects of the CTC on broader populations. Similarly, we find no evidence of an effect of the CTC on the employment of families with low incomes, consistent with evidence from other studies. We also find suggestive evidence that the CTC improved other measures of material well-being (reduced medical hardships, inability to pay utility bills, and reliance on friends and family for food). The 2021 monthly CTC was short-lived. Thus, it is hard to know what the effects of a longer-term, more stable credit would be. Nonetheless, our research suggests the credit reduced material hardship for families with very low incomes, which prior research suggests should improve child and family well-being. The authors would like to acknowledge Propel for its partnership in fielding the survey and sharing results for analysis. We would also like to thank U-M Poverty Solutions associate Samiul Jubaed for his assistance with the data cleaning as well as Nicole Kovski, who co-authored the paper summarized in this brief. We also thank the Washington Center for Equitable Growth and the Lynn and Charles Schusterman Family Foundation for their generous support of our research. Download PDF of full policy brief.