The Intergenerational Effects of the Earned Income Tax Credit on the Long-Run Income of Children

Abstract

This paper revisits the evidence on the intergenerational effects of the Earned Income Tax Credit on the adult income of individuals who received the tax credit during childhood. Identification exploits variation in exposure to formulaic changes localized across socioeconomic status in the tax credit schedule. The results show that tax credit transfers during early childhood increase adult income between 1.7 and 2.7 percent per $1,000 with respect to the mean. Contrary to previous studies, the critical timing of the EITC is during early childhood instead of adolescence. Furthermore, the intergenerational impact of the tax credit is driven by children of mothers working the fewest hours, suggesting that work conditions offset intergenerational poverty alleviation.

Keywords: tax credits, EITC, Intergenerational mobility, cash transfers