The Effects of the Child Tax Credit on Labor Supply

Abstract

The Child Tax Credit (CTC) is a major earnings subsidy in the US tax and transfer system, but its effects have received little research attention compared to the Earned Income Tax Credit. I identify the effects of the CTC on extensive margin labor supply using a difference-in discontinuities design, exploiting the fact that parents lose eligibility for the credit when a child turns 17. Focusing on the credit’s effects among lower-income households in the Survey of Income and Program Participation, I find that loss of the credit leads to an 8.4 percentage point reduction in the probability a child’s parents are employed. The implied elasticity is at the upper bound of previous studies, consistent with an intertemporal substitution response.

Keywords: Child Tax Credit

JEL Classification: H24, J18, J22