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Do single mothers in the United States use the Earned Income Tax Credit to reduce unsecured debt?

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  • H. Shaefer

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  • Xiaoqing Song
  • Trina Williams Shanks
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    Abstract

    The Earned Income Tax Credit (EITC) is a refundable credit for low-income workers mainly targeted at families with children. This study uses the Survey of Income and Program Participation’s topical modules on Assets and Liabilities to examine associations between the EITC expansions during the early 1990s and the unsecured debt of the households of single mothers. We use two difference-in-differences comparisons over the study period 1988–1999, first comparing single mothers to single childless women, and then comparing single mothers with two or more children to single mothers with exactly one child. In both cases we find that the EITC expansions are associated with a relative decline in the unsecured debt of affected households of single mothers. While not direct evidence of a causal relationship, this is suggestive evidence that single mothers may have used part of their EITC to limit the growth of their unsecured debt during this period. Copyright Springer Science+Business Media, LLC 2013

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    File URL: http://hdl.handle.net/10.1007/s11150-012-9144-y
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    Bibliographic Info

    Article provided by Springer in its journal Review of Economics of the Household.

    Volume (Year): 11 (2013)
    Issue (Month): 4 (December)
    Pages: 659-680

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    Handle: RePEc:kap:reveho:v:11:y:2013:i:4:p:659-680

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    Web page: http://www.springerlink.com/link.asp?id=109451

    Related research

    Keywords: Earned Income Tax Credit; Single Mothers; Unsecured Debt; H23; H53; I38;

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    1. Dahl, Molly & DeLeire, Thomas & Schwabish, Jonathan, 2009. "Stepping Stone or Dead End? The Effect of the EITC on Earnings Growth," National Tax Journal, National Tax Association, vol. 62(2), pages 329-46, June.
    2. Bruce D. Meyer & Dan T. Rosenbaum, 1998. "Welfare, the Earned Income Tax Credit, and the Labor Supply of Single Mothers," JCPR Working Papers 32, Northwestern University/University of Chicago Joint Center for Poverty Research.
    3. Ellwood, David T., 2000. "The Impact of the Earned Income Tax Credit and Social Policy Reforms on Work, Marriage, and Living Arrangements," National Tax Journal, National Tax Association, vol. 53(n. 4), pages 1063-1106, December.
    4. James X. Sullivan, 2008. "Borrowing During Unemployment: Unsecured Debt as a Safety Net," Journal of Human Resources, University of Wisconsin Press, vol. 43(2), pages 383-412.
    5. Larry Bumpass & R. Raley, 1995. "Redefining single-parent families: Cohabitation and changing family reality," Demography, Springer, vol. 32(1), pages 97-109, February.
    6. Nada Eissa & Jeffrey B. Liebman, 1995. "Labor Supply Response to the Earned Income Tax Credit," NBER Working Papers 5158, National Bureau of Economic Research, Inc.
    7. Meyer, Bruce D. & Sullivan, James X., 2004. "The effects of welfare and tax reform: the material well-being of single mothers in the 1980s and 1990s," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1387-1420, July.
    8. Barrow, Lisa & McGranahan, Leslie, 2000. "The Effects of the Earned Income Credit on the Seasonality of Household Expenditures," National Tax Journal, National Tax Association, vol. 53(n. 4), pages 1211-44, December.
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