Estimating Income Effects on Earnings using the 2021 Child Tax Credit Expansion

Abstract

We estimate income effects on earnings using the 2021 expanded Child Tax Credit. Children born in January 2016 were eligible for a credit of $3,600, while children born in December 2015 were eligible for $3,000. We use administrative tax data and a regression discontinuity design to estimate the earnings response to this temporary, one-year $600 increase in non-labor income. We find that employment as reported by third parties decreased by 2.0% in 2021 and 1.1% in 2022 in low-income families, with no effect on families with higher incomes. However, this decrease in wages was offset by an equivalent increase in self-employment income reported on tax returns, implying either increased misreporting or no overall change in real employment.