The Effects of the CTC on the Wellbeing of New York City Families in Poverty

• In Event: Tax Credit Payments During the COVID-19 Pandemic: Implications for Family Economic Hardship and Psychological Wellbeing

Abstract

The expansion to the Child Tax Credit (CTC) under the American Rescue Plan reformed the policy by increasing benefit values, removing the earnings requirement, and distributing the benefit monthly from July to December of 2021. These reforms made the CTC fully accessible to nearly all low-income families who were previously ineligible for the credit (Collyer et al., 2019; Curran & Collyer, 2020; Goldin & Michelmore, 2020). The CTC payments are known to have moved millions of children out of poverty in the months they were delivered (Acs & Werner, 2021; Marr et al., 2021) and to have reduced food insufficiency among families with children (Parolin et al., 2021; Perez-Lopez & Monte, 2021). The credit also had the potential to improve the lives of families and children in other domains, including several indicators of material hardship, expenditures on children, and parents’ mental health.
In this analysis, we assess the effects of the monthly CTC payments on each of these domains using data from the Poverty Tracker and the Early Childhood Poverty Tracker, two longitudinal studies of poverty and disadvantage in New York City. We estimate the effect of the monthly CTC payments on this comprehensive set of outcomes (Table 1) for families with children using a difference-in-difference framework with a continuous measure of treatment, which harnesses the variation in net income gains associated with the CTC due to differences in the number and age of children, as well as in prior family income. We employ this variation to estimate the change in outcomes per $100 in increased monthly income derived from the policy. Given that the expanded CTC may benefit lower-income households more than higher-income households, we produce estimates using the full sample and a sample limited to those who were living in poverty in either 2020 or 2019.
We find that the monthly CTC payments contributed to significant declines in the share of families with children facing any hardship, falling by 2.8 percentage points (p.p.), or 9.5% relative to the pre-treatment hardship rate of 55%. The results are of a larger magnitude for families in poverty compared to the full sample: a 3.5 p.p. reduction in the overall risk of hardship per $100 increase in income from the CTC, which translates to an 18% reduction in the pre-treatment mean of 70%. Additional results (see Table 2) show significant reductions in the share of families facing multiple hardships, the overall count of hardships families faced (with the most robust declines in financial hardship), and in the use of food pantries. Estimates of the effects on parents’ mental health and child-related expenditures are less conclusive, demonstrating greater sensitivity to the model specification chosen. In line with other recent research (Ananat et al., 2022; Roll et al., 2021), we do not find any reductions in labor force participation but instead, we find significant increases in the number of hours worked among employed parents.

Authors

• Sophie Collyer, Columbia University

• Jill Gandhi, Columbia University
  Presenting Author

• Irwin Garfinkel, Columbia University

• Jane Waldfogel

• Christopher Wimer, Columbia University