The Impact of the earned income tax credit program on children's human capital formation
The present study quantifies the impact of the Earned Income Tax Credit (EITC) program on children’s human capital formation and explores the channels that map the policy in question to the observed outcomes. Building on the existing studies, I hypothesize the existence of two channels at work. On the one hand, a rightward shift of the family’s budget constraint is likely to map to, ceteris paribus, a higher level of children’s human capital. On the other hand, the nature of the program in question positively affects parental working hours on both intensive and extensive margins. The implied reduction in hours spent with children at home speaks against the promise of observing a more sustainable human capital formation. Thus, the net reduced-form impact is an empirical question. My findings reveal a robust relationship between the EITC benefit and children’s self-reported health. I also show suggestive evidence on improvements in educational performance of children generated by the program. These findings suggest that the program in question serves as a sustainable safety net well-attuned for the purpose of providing basic living standards for children from poor households.
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