New Evidence on Taxes and the Timing of Birth

48 Pages Posted: 10 Aug 2013

See all articles by Sara LaLumia

Sara LaLumia

Williams College - Department of Economics

James Sallee

University of Michigan at Ann Arbor

Nick Turner

Board of Governors of the Federal Reserve System

Date Written: August 2013

Abstract

This paper uses data from the universe of tax returns filed between 2001 and 2010 to test whether parents shift the timing of childbirth around the New Year to gain tax benefits. Filers have an incentive to shift births from early January into late December, through induction or cesarean delivery, because child-related tax benefits are not prorated. We find evidence of a positive, but very small, effect of tax incentives on birth timing. An additional $1000 of tax benefits increases the probability of a late-December birth by only about 1 percentage point. We argue that the response to tax incentives is small in part because of confusion about eligibility and delays in the issuance of Social Security Numbers for newborns, as well as a lack of control over medical procedures on the part of filers with the highest tax values. We also document a precise shifting of reported self-employment income in response to variation in incentives from the Earned Income Tax Credit due to childbirth. We estimate that this reporting response reduces federal revenue by hundreds of millions of dollars per year.

Suggested Citation

LaLumia, Sara and Sallee, James and Turner, Nick, New Evidence on Taxes and the Timing of Birth (August 2013). NBER Working Paper No. w19283. Available at SSRN: https://ssrn.com/abstract=2308252

Sara LaLumia (Contact Author)

Williams College - Department of Economics ( email )

Fernald House
Williamstown, MA 01267
United States

James Sallee

University of Michigan at Ann Arbor ( email )

500 S. State Street
Ann Arbor, MI 48109
United States

Nick Turner

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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