Credit Where it's Due: The Impact of Federal and State EITC Expansions on the Mental Health of Parents

Developing effective policies targeted toward improving mental health is important in reducing health disparities of vulnerable populations and disrupting the intergenerational transmission of poverty. This study assesses whether the Earned Income Tax Credit (EITC) Program, which provides refundable tax credits to low-income working families, can affect adult mental health. This is important given the uncertain role of safety net and entitlement programs (i.e. Medicaid and SNAP benefits) in the current political environment. There are several mechanisms through which EITC program that may affect mental health. First, the it provides a direct tax credit to working families. Second, at the lowest end of the wage distribution, EITC expansions are predicted to increase labor supply. Third, the EITC program may impact the health insurance coverage of those induced to work.

Using data from the Behavioral Risk Factors Surveillance System (BRFSS) and EITC benefits across states and family size, we implement a difference-in-differences design and find that EITC expansions at both the federal and state level are associated with marked improvements in parental mental health. We use the BRFSS and Current Population Survey’s Annual Social and Economic Supplement (CPS) to assess the mechanisms through which the EITC may have affected mental health. Among our sample of non-elderly parents with a high school degree or less, we find that a $1000 increase in the maximum available credit is associated with a 4 percent reduction in the number of self-reported poor mental health days in the past month. The impact is stronger among samples that had larger employment effects including white non-Hispanics, mothers, and adults under age 45. We generally find no evidence of changes in coverage for the full sample nor for our subgroups of interest in the BRFSS and CPS.

We conclude that EITC expansions improved mental health and increased employment among our analysis sample, but did not have a significant effect on health insurance status. Two studies have previously documented the impact of the expansion of the federal EITC program following the Omnibus Reallocation Act of 1990 on the mental health of nonelderly adult women (Evans and Garthwaite 2011; Boyd-Swan et al. 2015). Our analysis is consistent with both studies, but also provides several contributions to the literature. First, we assess the impact of federal and state EITC expansions occurring over a much wider panel (1993-2015), which allows us to exploit changes in the benefit schedule across family size and within-state variation in EITC benefits. Second, the study considers whether changes in health insurance coverage may serve as a potential mechanism, which is important given the emerging consensus of the impact of Medicaid expansions on adult mental health.