I’m not a huge fan of the US tax code. I think it’s far too complicated and full of ridiculous things you can do to get around paying your taxes. This makes for rent seeking and a huge time suck. That said, I’m always interested in the types of incentives that certain taxes provide to change behavior, particularly when it comes to child health and investments in children. A new NBER working paper examines the relationship between infant health and the Earned Income Tax Credit.
Without having read the paper, my first thoughts are 1) why do we think the EITC would affect infant health specifically? and 2) those are pretty large effects for an increase in income. The authors argue that an exogenous increase in income means mothers will seek out more prenatal care, but it seems that a 10% reduction in the rate of low birth weight babies would require a large portion of the tax credit (increase in income) to go towards prenatal care for most mothers (or all for some and a small amount for others). Maybe they address it later on, but this, too, will make for some good plane and train reading this week.
The abstract is here:
This paper evaluates the health impact of a central piece in the U.S. safety net for families with children: the Earned Income Tax Credit. Using tax-reform induced variation in the federal EITC, we examine the impact of the credit on infant health outcomes. We find that increased EITC income reduces the incidence of low birth weight and increases mean birth weight. For single low education (<= 12 years) mothers, a policy-induced treatment on the treated increase of $1000 in EITC income is associated with 6.7 to 10.8% reduction in the low birth weight rate, with larger impacts for births to African American mothers. These impacts are evident with difference-in-difference models and event study analyses. Our results suggest that part of the mechanism for this improvement in birth outcomes is the result of more prenatal care and less negative health behaviors (smoking). We find little role for changes in health insurance. We contribute to the literature by establishing that an exogenous increase in income can improve health, and illustrating a health impact of a non-health program. More generally, we demonstrate the potential for positive external benefits of the social safety net.
Source: “Income, the Earned Income Tax Credit, and Infant Health.” Hilary W. Hoynes, Douglas L. Miller, David Simon. NBER Working Paper No. 18206, July 2012