This paper analyzes the relationship between work-promoting income transfer policies and child development. We provide new comprehensive evidence of the unintended consequences for child development of the Earned Income Tax Credit expansions during the 1990s in the United States. Our theory-driven empirical model sheds light on the trade-off between the income effect (economic resources) and the substitution effect (time and quality of the parent-child interaction) on a child's cognitive and behavioral development. This money versus time trade-off is most pronounced for disadvantaged mothers. Overall, our results call for a policy debate on how to design targeted supplements for disadvantaged families to support working mothers and their children.
Third version, October 20, 2022
H24: Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
H31: Fiscal Policies and Behavior of Economic Agents: Household
I21: Analysis of Education
I38: Welfare and Poverty: Government Programs; Provision and Effects of Welfare Programs
J13: Fertility; Family Planning; Child Care; Children; Youth
J22: Time Allocation and Labor Supply