Earned Income Tax Credit expansion negatively affected child development outcomes

As part of US welfare reforms in the 1990s to provide adequate financial support to low-income families while avoiding disincentivizing work, policymakers expanded the Earned Income Tax Credit (EITC). This change encouraged people to work more by giving greater benefits with greater earned income, and single mothers faced stronger incentives to enter the workforce than married mothers. An analysis in Contemporary Economic Policy indicates that the EITC expansion may have had unintended negative effects on the development of single mothers' children.

Based on mother–child survey data from 1990–1996, the study found that following the EITC expansion, children of single mothers experienced a decline of 0.14 standard deviations in combined math and reading test scores relative to children of married mothers, as well as a decline of 0.68 standard deviations in early motor and social development among young children, although this latter estimate is based on a smaller sample and should be interpreted with caution.

Increased employment among single mothers was accompanied by reduced cognitive stimulation at home and fewer time-intensive parental interactions for their children, relative to children of married mothers, suggesting that reduced caregiver–child connections may have contributed to these effects.

For low-income single mothers, a key group targeted by pro-work welfare programs, the effects of reduced time with their children as they work more may outweigh the benefits of increased income for children's development, at least in the short run. Pairing work incentives with affordable, high-quality childcare could help these families strike a better balance between work and time with their children."

Jeehyun Ko, PhD, author, Korea Institute of Public Finance