The earned income tax credit and union formation: The impact of expected spouse earnings
Using the Survey of Income and Program Participation from 2001, 2004, and 2008 and federal and state variation in earned income tax credit generosity over time, I investigate how changes in expected household earned income tax credit benefits associated with marriage affect cohabitation and marriage behavior among low-income single mothers. I simulate a marriage market to predict potential spouse earnings for a sample of single mothers in order to estimate the potential losses or gains in earned income tax credit benefits upon marriage. Using multinomial logistic regressions, I then analyze how the anticipated loss in earned income tax credit benefits upon marriage affects the likelihood of marrying or cohabiting. Results suggest that the average earned income tax credit-eligible woman can expect to lose approximately US$1,300 in earned income tax credit benefits in the year following marriage, or about half of pre-marriage benefits. Single mothers who expect to lose earned income tax credit benefits upon marriage are 2.5 percentage points less likely to marry their partners and 2.5 percentage points more likely to cohabit compared to single mothers who expect no change or to gain earned income tax credit benefits upon marriage. Despite recent policy efforts to reduce the size of the marriage penalty embedded in the earned income tax credit structure, these results suggest that the earned income tax credit still creates distortions in marriage and cohabitation decisions among low-income single mothers.
KeywordsEarned income tax credit Marriage Cohabitation Marriage penalties
JEL ClassificationH2 I38 J12
The author would like to thank Michael Lovenheim, Kelly Musick, Sharon Sassler, and Laura Tach for helpful advice and comments. She would also like to acknowledge support from the Institute for Education Sciences on grant R305B110001. Any remaining errors are the author’s own.
Compliance with ethical standards
Conflict of interest
The authors declare that they have no conflict of interest.
- Bertrand, M., Kamenica, E., & Pan, J. (2013). Gender identity and relative income within households (No. w19023). National Bureau of Economic Research.Google Scholar
- Edin, K., & Kefalas, M. (2005). Promises I can keep: Why poor women put motherhood before marriage. Berkeley: University of California Press.Google Scholar
- Eissa, N., & Hoynes, H. W. (2000). Tax and transfer policy, and family formation: Marriage and cohabitation. MimeoGoogle Scholar
- Evans, W. N., & Garthwaite, C. L. (2010). Giving mom a break: The impact of higher EITC payments on maternal health. National Bureau of Economic Research Working Paper: 16296.Google Scholar
- Internal Revenue Service. (2013). Qualifying child rules. http://www.irs.gov/Individuals/Qualifying-Child-Rules. Accessed 12 February 2013
- Kearney, M. S., & Turner, L. J. (2013). Giving secondary earners a tax break: A proposal to help low- and middle-income families. The Hamilton Project Discussion Paper.Google Scholar
- Kennedy, S., & Bumpass, L. (2011). Cohabitation and trends in the structure and stability of children’s family lives. Paper presented at the Annual Meeting of the Population Association of America, Washington, DC.Google Scholar
- Kenney, C. (2004). Cohabiting couple, filing jointly? Resource pooling and U.S. poverty policies. Family Relations, 53, 237–247.Google Scholar
- Moffitt, R. A. (1998). The effect of welfare on marriage and fertility. In: Robert A. Moffitt (Ed.), Welfare, the family, and reproductive behavior: Research perspectives (p. 50). Washington DC: National Academies Press.Google Scholar
- Tach, Laura, & Halpern-Meekin, Sarah (2013). Tax code knowledge and behavioral responses among EITC recipients: Policy insights from qualitative data. Journal of Policy Analysis and Mangement, 33(2), 413–439.Google Scholar
- Tax Policy Center. (2011). EITC, TANF, and food stamp participation rates, 1990–2004. Taxpolicycenter.org. http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=273. Accessed 30 April 2011, http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=36 Historical EITC parameters. Accessed 30 April 2011