by Zixin “Ellen” Zhang

Abstract

Studies have established that the Advance 2021 Child Tax Credit (CTC) payments substantially reduced poverty and food insecurity, but some claim that the CTC payments may create negative labor supply effects that could offset its hardship-reduction benefits. Researchers have used a variety of methods to measure how the monthly CTC payments affect the labor supply of households, but the results vary from significant decreases to no significant change to even increases in household labor supply. Using a method novel to this literature, I estimate the labor supply impacts of Advance 2021 CTC by analyzing labor supply changes in response to real amounts of CTC received, which varies by household depending on regional cost-of-livings. Through fixed effects linear regressions across many different combinations of household type and income level, I find that, on average, receiving Advance CTC caused a statistically significant decrease in household labor supply. However, for different household subgroups, I find both statistically significant and insignificant labor supply impacts as well as both increases, decreases, and no change in households’ labor supply due to monthly CTC payments. This suggests that the impacts of 2021 Advance CTC on household labor depend heavily on a household’s situation, specifically income level and household composition. These household-specific patterns align with prior research on the Advance 2021 CTC and how welfare payments are used by families.

Professor Thomas Nechyba, Faculty Advisor

JEL Codes: C31, H24, I38, J22

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