Effects of the 2021 Expanded Child Tax Credit

Abstract

We examine the effects of the July 2021 expansion of the Child Tax Credit (CTC). We analyze detailed transactions data for 2019 through September 2021, utilizing a difference-in-differences design, and controlling for state-time specific conditions. We find that recipients of expanded CTC monthly payments do not significantly leave the workforce. They increase their total consumption, including increasing spending on groceries, education, and healthcare. Families put more money towards reducing debt, and incur fewer overdraft fees. We find weaker results regarding savings and payments towards debt collection agencies. The consumption effects of the expanded CTC are strongest for families with more children, and for the lowest-income families. Our results provide large-scale empirical evidence on the realized effects of the 2021 changes to the CTC, and suggest that families significantly benefited from the expanded CTC payments, without significant costs to employment.

Keywords: child tax credit, household finance, employment, consumption, debt, savings, financial distress

JEL Classification: D12, D14, G5, H24, M48