Poverty and Child Development: A Longitudinal Study of the Impact of the Earned Income Tax Credit

Abstract

Although adverse socioeconomic conditions are correlated with worse child health and development, the effects of poverty-alleviation policies are less understood. We examined the associations of the Earned Income Tax Credit (EITC) on child development and used an instrumental variable approach to estimate the potential impacts of income. We used data from the US National Longitudinal Survey of Youth (n = 8,186) during 1986-2000 to examine effects on the Behavioral Problems Index (BPI) and Home Observation Measurement of the Environment inventory (HOME) scores. We conducted 2 analyses. In the first, we used multivariate linear regressions with child-level fixed effects to examine the association of EITC payment size with BPI and HOME scores; in the second, we used EITC payment size as an instrument to estimate the associations of income with BPI and HOME scores. In linear regression models, higher EITC payments were associated with improved short-term BPI scores (per $1,000, β = -0.57; P = 0.04). In instrumental variable analyses, higher income was associated with improved short-term BPI scores (per $1,000, β = -0.47; P = 0.01) and medium-term HOME scores (per $1,000, β = 0.64; P = 0.02). Our results suggest that both EITC benefits and higher income are associated with modest but meaningful improvements in child development. These findings provide valuable information for health researchers and policymakers for improving child health and development.

Keywords: child health; instrumental variables; poverty alleviation; socioeconomic determinants of health.

Figure 1.

Average Earned Income Tax Credit (EITC) payment by year and number of children in the household (n= 3,659 households), National Longitudinal Survey of Youth, 1986–2000. This figure demonstrates the variation in average EITC payment size among EITC-eligible participants in the study sample. Values are inflation-adjusted to year 2000 dollars.

Figure 2.

Instrumental variable design. Instrumental variable methods are used in cases in which the relationship between the exposure (X) and the outcome (Y) is confounded by other unobserved factors (U) and in which the exposure cannot be randomized. They take advantage of the existence of a third variable—the instrument (Z)—which itself is quasi-random and which influences the outcome (Y) only through the exposure (X). EITC, Earned Income Tax Credit.