The Absence of Income Effects at the Onset of Child Tax Benefits

24 Pages Posted: 3 Dec 2018

See all articles by Jacob Mortenson

Jacob Mortenson

Joint Committee on Taxation, US Congress

Heidi Schramm

Joint Committee on Taxation, U.S. Congress

Andrew Whitten

U.S. Department of the Treasury - Office of Tax Analysis (OTA)

Lin Xu

Government of the United States of America - Joint Committee on Taxation

Date Written: November 26, 2018

Abstract

We study the effects of quasi-random variation in unearned income on labor force participation, earnings, business income, capital gains realizations, retirement savings, and unemployment compensation. To identify these income effects, we exploit an age discontinuity in the federal tax system: parents whose children are born in December of year t-1 can claim child-related tax benefits for that year, whereas otherwise-similar parents whose children are born in January of year t cannot. We use a panel of administrative tax data comprised of the universe of married households with a child born in December or January in years 2001 through 2013. Over this period, the average child tax benefit was about $1,800. Using a regression discontinuity research design, we find approximately zero treatment effects on the intensive and extensive margin for all outcome variables studied. Our results are consistent with precise zero income effects and suggest that households do not learn about (and respond to) child tax benefits in the first year they are claimed.

Keywords: income effects, labor supply, saving, tax credits, unearned income

JEL Classification: D12, E21, H24, H31, J22

Suggested Citation

Mortenson, Jacob and Schramm, Heidi and Whitten, Andrew and Xu, Lin, The Absence of Income Effects at the Onset of Child Tax Benefits (November 26, 2018). Available at SSRN: https://ssrn.com/abstract=3290744 or http://dx.doi.org/10.2139/ssrn.3290744

Jacob Mortenson (Contact Author)

Joint Committee on Taxation, US Congress ( email )

502 Ford House Office Building
Washington, DC 20515
United States

HOME PAGE: http://www.jacobmortenson.com

Heidi Schramm

Joint Committee on Taxation, U.S. Congress ( email )

H2-502 Ford House Office Building
Washington, DC 20515
United States

Andrew Whitten

U.S. Department of the Treasury - Office of Tax Analysis (OTA) ( email )

1500 Pennsylvania Ave., N.W.
Washington, DC 22203
United States

HOME PAGE: http://rawhitten.com

Lin Xu

Government of the United States of America - Joint Committee on Taxation ( email )

441 2nd st SW
Washington, DC 20002
United States

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