The Earned Income Tax Credit and Child Achievement

The Earned Income Tax Credit (EITC) offers financial assistance to low income families with children while providing an incentive to work. However, only single mothers have been shown to increase their labor supply in response to the EITC. Because the EITC causes single mothers to enter the workforce and, presumably, alter their pattern of child care, the net impact of this policy on their children is unclear. I estimate the impact of the EITC on the achievement of children with single mothers using two strategies. Both are difference-in-differences approaches that exploit an increase in EITC generosity for families with two+ children relative to families with only one child. The first approach uses the interaction of group and time dummy variables in a standard difference-in-differences framework; the second approach uses variation in a group-level simulated EITC payment. Estimates from the first approach indicate that the EITC reduces reading achievement, but the results are not robust; estimates from the second approach are positive, though imprecise. These findings contrast with the positive, and very precise results from a recently published paper in The American Economic Review wherein the authors use the EITC instrumentally to estimate the causal effect of income on child achievement. However, I present evidence suggesting that the strategy employed in this study may not be valid. I conclude that, while it is certainly possible that the EITC boosts child achievement, we are still looking for good evidence of an effect. (JEL H24, H31, I21, I38, J13