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Income, the Earned Income Tax Credit, and Infant Health

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Income, the Earned Income Tax Credit, and Infant Health

Hoynes, Hilary, Doug Miller, David Simon. American Economic Journal: Economic Policy.7(1): 172–211, February 2015

Abstract

This paper evaluates the health impact of a central piece in the U.S. safety net for families with children: the Earned Income Tax Credit. Using tax-reform induced variation in the federal EITC, we examine the impact of the credit on infant health outcomes. We find that increased EITC income reduces the incidence of low birth weight and increases mean birth weight. For single low education (12 years or less) mothers, a policy-induced treatment on the treated increase of $1000 in after-tax income is associated with a 0.17 to 0.31 percentage point decrease in low birth weight status. Given roughly 10.7% of treated children were low birth weight, this represents a 1.6% to 2.9% decline. These impacts are evident with difference-in-difference models and event study analyses, and show larger impacts for births to African American mothers. Our results suggest that part of the mechanism for this improvement in birth outcomes is the result of more prenatal care and less negative health behaviors (smoking). Additionally, we find a shift from public to private insurance coverage, and for some a reduction in insurance overall, indicating a potential change in the quality and perhaps quantity of coverage. We contribute to the literature by establishing that a policy-driven increase in income and labor supply can improve health, and illustrating a health impact of a non-health program. More generally, we demonstrate the potential for positive external benefits of the social safety net.