Income effect

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

We estimate income effects on earnings using the 2021 expanded Child Tax Credit. We find that employment as reported by third parties decreased by 2.0% in 2021 and 1.1% in 2022 in low-income families in response to $600 of non-labor income, 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.