The Absence of Income Effects at the Onset of Child Tax Benefits
24 Pages Posted: 3 Dec 2018
Date Written: November 26, 2018
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
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