The effect of the Child Care Tax Credit on Children’s Long-term Educational Achievement

The Child Care Tax Credit (CCTC) is a child care subsidy program that encourages parents, especially mothers, to join the labor force. Previous research shows that the CCTC significantly increases the labor force participation of mothers, especially for married ones. How are children’s well-being affected when mothers join the labor force and substitute maternal child care with purchased child care services? Potentially there are two main channels that the CCTC affects the educational achievement of children. The working mother brings in more income and the tax credit gives the family some extra financial resources, which help the development of the children. On the other hand, the tax credit also affects the mother’s time allocation, and the change of time exposed to child care intensity also affects the development of the child. I document a comprehensive legislative history of the CCTC enactments, amendments, and repeals at both federal and state levels. Using the detailed CCTC variation generated by exogenous law changes and applying the variation on samples from the Panel Study of Income Dynamics, I examine the effects of the CCTC policy exposure at an early age on the educational achievement of the child. The results show that CCTC policy exposure at an early age has negative effects on the educational achievement of the child, which shows evidence that the mother’s time allocation effect at an early age dominates the income effect of the tax credit for the marginal population. This research is the first to evaluate the impact of the CCTC on children’s educational achievement.