Tax incentives for children?

The Earned Income Tax Credit currently means that a "qualifying child" can be worth thousands of dollars in tax refunds. Does this "tax incentive" cause taxpayers to have more children? At least study found that the expansion of the Earned Income Credit in the 1990s actually caused a small effect--in the opposite direction!

The earned income tax credit and fertility
Journal of Population Economics

The earned income tax credit and fertility
Reagan Baughman1 and Stacy Dickert-Conlin2

(1) Department of Economics, University of New Hampshire, 401C McConnell Hall, Durham, NH 03824, USA
(2) Department of Economics, Michigan State University, 110 Marshall-Adams Hall, East Lansing, MI 48824, USA

Published online: 24 November 2007


Abstract Government programs designed to provide income safety nets often restrict eligibility to families with children, creating an unintended fertility incentive. This paper considers whether dramatically changing incentives in the earned income tax credit affect fertility rates in the USA. We use birth certificate data spanning the period 1990 to 1999 to test whether expansions in the credit influenced birthrate among targeted families. While economic theory would predict a positive fertility effect of the program for many eligible women, our results indicate that expanding the credit produced only extremely small reductions in higher order fertility among white women.

A time to be born ... a time to die

I recommend playing the video above while you read about the technical papers linked below.

Economists....we look at the elasticities of behavioral responses to taxes everywhere. Birth, death, marriage, work, savings, education, investment, you name it, an economist has studied how taxes influence it.

Taxpayers with a newborn "qualifying child" born before midnight December 31 are entitled to a full year of tax benefits associated with that child. As the child-related tax benefits have increased in recent decades, along with the increased use of planned Caesarian sections, economists have found a small but significant effect on the timing of births, with potential public health consequences.

For details, see Taxes and the Timing of Births, 107 Journal of Political Economy 161 (1999), by Stacy Dickert-Conlin (Syracuse University, Center for Policy Research) & Amitabh Chandra (Harvard University, John F. Kennedy School of Government), available here.

However, the tax benefits associated with children do not seem to have increased overall fertility rates--if anything, the increased tax benefits for children have slightly decreased fertility rates. See The earned income tax credit and fertility by Reagan Baughman and Stacy Dickert-Conlin, available here.

At the other end of life, for some very wealthy taxpayers dying before the end of the year could save millions of dollars in estate taxes, due to the fact that estate taxes are expected to increase in 2011.

Two economists, Wojciech Kopczuk and Joel Slemrod, have studied the effect of tax incentives on the timing of deaths in a paper called "Dying to save taxes", published in the Review of Economics and Statistics in 2006. They estimate that a $10,000 tax break might be enough to change the relative probability of dying in the period before vs. after the tax break by as much as 1.6%. (However, they concede that they can't be sure how much of that effect is due to the timing of the actual death or how much might be due to "doctoring" of the death certificate by an accommodating physician who fills out the death certificate.) The paper is available here.

Bottom line of all this research: the largest effects are on timing of births and deaths, not on the actual total number of births and deaths.

Taxes do not seem to cause people to have more children....nor, in the long run, do they cause more total deaths.

Sooner or later, we are all going to die--notwithstanding the old saying that there's no escaping death and taxes, it is easier to escape taxes than death.