How does exposure to Earned Income Tax Credit (EITC) expansions in childhood impact education and employment outcomes in adulthood? That’s the subject of this important paper in the Journal of Labor Economics from Jacob Bastian of the University of Michigan and Katherine Michelmore of Syracuse University. An ungated version is available here. The central findings were summed up by Bastian on twitter:
We find that an additional $1,000 in EITC exposure when a child is 13–18 years old increases the likelihood of completing high school (1.3%), completing college (4.2%), and being employed as a young adult (1.0%) and earnings by 2.2%.
— Jacob Bastian (@JacobBastian25) July 29, 2018
Thanks to four decades of panel data, capturing individuals from several birth cohorts, the authors are able to estimate heterogeneous treatment effects by age of exposure, as well as a variety of demographic characteristics. The largest education effects were felt by minorities, kids of single-parents, and kids with parents that did not go to college. Economists have known about the power of the EITC to improve child educational outcomes for sometime, but Bastian and Michelmore show that the benefits last well into adulthood.
The EITC is the U.S.’s largest cash transfer program, directly topping up the incomes of millions of low-income working households, particularly those home to children. This paper is just the latest in the growing body of research demonstrating the power of cash to improve the lives of the poor, which I previously summarized in this memo to the National Academies of Sciences.