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Department ofEconomics

Papers

The Earned Income Tax Credit, Mental Health, and Happiness

John Ifcher, Cassey Boyd-Swan, Chris Herbst, and Homa Zarghamee

The Journal of Economic Behavior & Organization 126 (part A),pp. 18-38, June 2016

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Abstract

      We study the impact of the earned income tax credit (EITC) on various measures of subjective well-being (SWB) using the National Survey of Families and Households (NSFH) to estimate intent-to-treat effects of the EITC expansion embedded in the 1990 Omnibus Budget Reconciliation Act. We use a difference-in-differences framework that compares the pre-and post-expansion SWB-changes of women likely eligible for the EITC (low-skilled mothers of working age) to the SWB-changes of a comparison group that is likely ineligible (low-skilled, childless women of working age). Our results suggest that the EITC expansion generated sizeable SWB-improvements in the three major categories of SWB identified in the literature. The NSFH is one of few datasets containing all three major categories of SWB. Subgroup analyses by marital status suggest that improvements accrued more to married than unmarried mothers. Relative to their childless counterparts, married mothers experienced a 15.7% decrease in depression symptomatology (experiential SWB), a 4.4% increase in happiness (evaluative SWB), and a 10.1% increase in self-esteem (eudemonic SWB). We also present specification checks that increase confidence that the observed SWB-effects are explained by the OBRA90 EITC expansion. Lastly, we explore mechanisms that may explain the differential impact of the EITC expansion by marital status.

LSB Research, ECON, 2016, John Ifcher