The Long-Run Effects of the Earned Income Tax Credit on Women's Earnings

Abstract

Using longitudinal data on marriage and children from the Panel Study of Income Dynamics from 1967 to 2016, we characterize women’s exposure to the federal and state Earned Income Tax Credit (EITC) during their first two decades of adulthood. We use measures of this exposure to estimate the long-run effects of the EITC on women’s labor market outcomes as mature adults, specifically at age 40. Our results suggest that exposure to a more generous EITC when women were unmarried and had older (school-age) children leads to higher earnings in the longer-run, and we find corresponding evidence suggesting that longer-run exposure of unmarried mothers to a more generous EITC increases cumulative labor market experience. Additionally, we find evidence to suggest that exposure to a more generous EITC when women had children while married leads to lower earnings and hours in the longer-run. For both groups, adjustments in hours worked along the intensive margin appear to drive these results. These longer-run effects are consistent with what we would expect from the short-run effects of the EITC on employment and hours predicted by theory and documented in other work.