Whitepaper: Investigating The Effects of the 2021 Child Tax Credit Expansion
By: Jacob Bastian
There has been a lot of debate over how the 2021 expansion of the Child Tax Credit (CTC) will impact poverty and maternal employment.
The goal of this paper is to:
- (1) illustrate how the CTC has changed over time, and examine its impact on tax rates and the incentive to work;
- (2) replicate previous research with a focus on Corinth et al. (2021) and understand how different approaches and elasticity assumptions lead to different conclusions about the CTC's effect on employment and poverty; and
- (3) use my preferred set of elasticities to put forth my best estimate about the CTC's effect on employment and poverty.
Using the same elasticities as Corinth et al. (2021), I am largely able to replicate their employment effects, but I found much larger reductions in poverty:
- I found a dynamic reduction in child poverty of 31.4%, larger than the 22% reduction found by Corinth et al. (2021).
- I also found dynamic reductions in child deep poverty of 45%, much larger than the 0% found by Corinth et al. (2021).
Using my preferred approach, I find that the 2021 CTC would lead 413,000 adults, including 325,000 mothers and 96,000 poor adults, to stop working. Over a full year, the CTC would reduce adult and child poverty rates from 11.1% and 17.2%, to 7.4% and 11.2%.
Overall, the 2021 CTC reduces adult and child poverty by 33.3% and 34.9%, and reduces deep poverty by 43.5% and 51.3%, larger than the impact of the 2018 CTC and Earned Income Tax Credit combined.
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