Wednesday, March 4, 2009

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.

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