The Long-Term Impact of the Earned Income Tax Credit on Children's Education and Employment Outcomes

Abstract

Using four decades of variation in the federal and state Earned Income Tax Credit, we estimate the impact of the EITC on education and employment outcomes on children exposed to EITC expansions in childhood. Reduced-form results suggest that an additional $1,000 in EITC exposure when a child is 13 to 18 years old increases the likelihood of completing high school (1.3 percent), completing college (4.2 percent), being employed as a young adult (1.0 percent), and earnings by 2.2 percent. Instrumental variables analysis reveals that the primarily channel through which the EITC improves education and employment outcomes among children is through increases in pre-tax family income.

Keywords: earned income tax credit, educational attainment, intergenerational mobility

JEL Classification: H2, I2, I3