Exposure to the Earned Income Tax Credit in Early Childhood and Family Wealth

• Published in: RSF : Russell Sage Foundation journal of the social sciences 2021-08, Vol.7 (3), p.196-215
• Main Authors: Michelmore, Katherine, Lopoo, Leonard M.
• Format: Article
• Language: English
• Subjects: Childhood; Children & youth; Credit cards; Earned income tax credit; Earnings; Educational attainment; Families & family life; Households; Income distribution; Income taxes; Inequality; Labor supply; Low income groups; Part III. Policies That Address Wealth Inequality for Children; Poverty; Taxation; wealth; Wealth distribution
• ISSN: 2377-8253; 2377-8261
• DOI: 10.7758/RSF.2021.7.3.09

Using the Panel Study of Income Dynamics and a cohort of individuals born between 2000 and 2011, we examine whether exposure to the Earned Income Tax Credit (EITC) in early childhood (birth to age five) affects family wealth in middle childhood (ages six through eleven). Results suggest that a $1,000 increase in EITC exposure in early childhood increases overall family wealth in middle childhood by around 4 percent. We also observe an increase in credit card debt (3 to 4 percent) and evidence that the EITC increases low-income families’ position in the wealth distribution. Effects are concentrated among white families; we find little evidence of a significant effect of the EITC on the wealth held by black families. Together, these results imply that although the EITC does appear to increase family wealth in childhood, it may not do much to reduce the substantial wealth gap between black and white families.