Short-term Effects of the Earned Income Tax Credit on Mental Health and Health Behaviors

Principal Investigator
University of California, San Francisco

Overview

The largest poverty alleviation program for families in the U.S. is the earned income tax credit (EITC), which provides a lump-sum tax refund each spring to millions of low-income working families. While a growing body of literature has examined the effects of the EITC on adult health, little is known about whether the lump-sum nature of the benefit leads to seasonal improvements in health that fade later in the year. Building on prior conflicting studies in the International Journal of Epidemiology and the American Journal of Epidemiology, researchers Daniel F. Collin, Laura S. Shields-Zeeman, Akansha Batra, Anusha M. Vable, David H. Rehkopf, Leah Machen, and Rita Hamad evaluated seasonal variation in the health effects of the EITC among U.S. adults in this study published in Preventive Medicine.

Findings

Using a sample of over 370,000 adults from the 1997-2016 waves of the National Health Interview Survey and over 29,000 adults from the 1985-2015 waves of the Panel Study of Income Dynamics, the research team explored seasonal variation in mental health and health behaviors among EITC recipients. The results suggest:

  • There was no association of EITC receipt with short-term psychological distress, tobacco use, or alcohol consumption in the short term, despite prior studies finding long-term effects of the EITC on these outcomes.
  • This finding was replicated across both large national longitudinal data sets.
  • EITC recipients may anticipate receipt of the benefit so they change their spending behaviors even before receiving it.

Implications for Policy and Practice

Poverty has consistently been linked to poor mental health and risky health behaviors, yet few studies evaluate the effectiveness of programs and policies to address these outcomes by targeting poverty itself. Moreover, some prior studies have raised concerns that U.S. government transfer payments may be associated with higher rates of smoking, social drinking, mortality, and drug-related hospitalizations shortly after income receipt, a phenomenon known as the “check effect.”

The findings suggest no such short-term detrimental effects of the EITC on health behaviors, but at the same time no short-term improvements in mental health from the income boost. It may be that the predictable timing and size of EITC refunds enable recipients to smooth consumption of the relevant inputs for these health outcomes, for example, by taking out loans or using credit cards in the months prior to EITC refund receipt. If future work finds that this is the case, a possible policy solution would be to spread out EITC payments over the course of the year rather than providing them as a lump sum to help recipients avoid debt. Alternately, recipients may spend the refund on other purchases unrelated to these health outcomes, such as major appliances or household resources to benefit children, as has been suggested in prior work.

Published
in
Preventive Medicine