Cash Assistance Through the Tax System and Financial Hardship Experienced by Lower-Income Households During the COVID-19 Pandemic: How Long Did the Association Last?

Abstract

This study investigates how long higher cash assistance eligibility from the tax system was associated with the financial hardship experienced by lower-income households during the COVID-19 pandemic. I use data from the United States Census Bureau’s Household Pulse Survey, which has regularly gathered data on financial hardship since August 2020. I utilize four contexts created by across-time and across-group variations in cash assistance eligibility for lower-income households with and without children (higher- and lower-eligible groups, respectively). In general, findings of models estimated using a difference-in-differences event study approach suggest that higher cash assistance eligibility was linked to a reduction in financial hardship in some of the weeks after the beginning of the payments; however, the association faded out after a while before reappearing following the beginning of subsequent payments. Although this study cannot identify program-specific effects, results suggest that pandemic-era programs—such as Economic Impact Payments and Advance Child Tax Credit—played a role, along with existing lump-sum Earned Income Tax Credit and Child Tax Credit programs, in reducing financial hardship over an extended period in 2021. These findings have implications for designing cash assistance programs and measuring financial hardship experienced by economically disadvantaged households.