Tots or Teens: How Does Child’s Age Influence Maternal Labor Supply Response to the Earned Income Tax Credit?

August 1, 2018

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August 2018

Katherine Michelmore, Syracuse University
Natasha V. Pilkauskas, University of Michigan

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The U.S. social safety net has changed in important ways over the last three decades, shifting away from a system of direct cash assistance toward providing benefits through the tax code. In this paper, we investigate the implications of this shift on children’s financial wellbeing by examining how the two largest tax credits for working families, the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC) affect maternal labor supply, family income, and childhood poverty. Although the EITC has been well studied, there is no rigorous empirical evidence on the effects of the CTC on maternal labor supply. Conducting the analyses from the child’s perspective, we estimate heterogeneous treatment effects by child’s age, shedding light on how and at what age these two important tax credits affect the financial wellbeing of children residing with single mothers. Corroborating previous findings, results suggest that the EITC has a large, positive effect on maternal labor supply among single mothers. We find some evidence that expansions to the CTC increased both extensive and intensive margin maternal labor supply. Analyses of the combined effects of the credits suggest moderate labor supply effects and reductions in childhood poverty. Both credits produce larger labor supply and earnings responses among mothers with very young children (infants/toddlers) as compared to mothers with children over the age of six, providing further evidence of the importance of refundable tax credits in improving the financial circumstances of young children residing with unmarried mothers.