Do Earned Income Tax Credit and Medicaid interact to shape child well-being?

• In Event: Tax Policy and Intergenerational Family Wellbeing

Abstract

Background and Research Question. The U.S. government offers a patchwork of safety net programs targeting low- to moderate-income families. Medicaid (public health insurance) and the Earned Income Tax Credit (EITC) (refundable tax credits; lump-sum cash benefits) are the two largest safety net programs by enrollment, and joint participation is common: nearly 18 million people jointly receive both benefits (Macartney & Ghertner, 2023). Despite this fact, most prior research has examined these programs in isolation, leaving a limited understanding of how they may interact to influence children’s development. This study seeks to provide a more comprehensive understanding of policy impacts by examining their interaction effects on children’s reading and math test scores among families who likely receive both programs.Whether Medicaid and EITC interact to affect academic achievement is an empirical question. While they may simply operate independently, they may also be complementary. For example, improvements in cognitive skills or health due to EITC generosity—through parents’ use of refunds to enhance home environments and invest in learning—may enable children to derive greater returns to subsequent positive changes that Medicaid may engender in their home environments (e.g., see Bullinger et al., 2023). In this case, gains from Medicaid may be larger for children who have benefited from greater EITC generosity, a mechanism that aligns with “dynamic complementarity.” Additionally, the EITC refunds may facilitate healthcare utilization by helping families cover expenses associated with accessing care, such as transportation and childcare, which can enhance the effectiveness of Medicaid in improving family functioning and, in turn, child well-being.

Methods. Data come from the Early Childhood Longitudinal Study–Kindergarten Cohort 2010–2011, a nationally representative longitudinal survey following children from kindergarten through grade 5 (survey year: 2010–2016). To address endogeneity concerns, I exploit plausibly exogenous variation in parents’ access to Medicaid and exposure to EITC generosity generated by state policy changes, using a difference‑in‑difference‑in‑differences framework with child and year fixed effects. Identification relies on 1) state Medicaid expansions under the Affordable Care Act—implemented primarily in 2014—and 2) changes in refundable state EITCs, including adoption, expansion, reduction, or elimination of policies. I interact these policy changes to estimate whether the effect of Medicaid on children’s reading and math achievement varies with state EITC generosity.

Results. Consistent with prior research (Bullinger et al., 2023), I find that Medicaid expansion increases test scores, particularly in reading. Future analyses will examine whether these gains are larger for children exposed to more generous EITC benefits and potential mechanisms underlying these effects. I will further assess heterogeneity in interaction effects by child race and ethnicity and parental education, given that more disadvantaged populations may be more responsive to safety‑net policies.

Implications. As recent policy changes are projected to reduce access to safety‑net benefits, including Medicaid, this study provides timely evidence on how multiple policies jointly influence children’s development, which is a key predictor of long-term socioeconomic and health trajectories. Findings may contribute to the evidence base that informs state and local policy decisions affecting families with children.

Author

• Stephanie Hong, Stony Brook University
  Presenting Author