The Earned Income Tax Credit (EITC) and Health Insurance Coverage of Mothers and Children

Angela R. Fertig, University of Georgia
Haeil Jung, Indiana University, Bloomington
David Reingold, Indiana University

The Earned Income Tax Credit (EITC) is a federal income tax policy that subsidizes the wages of low-income earners while at the same time encouraging them to work. In this paper, we examine the effect of EITC on the probability of having private health insurance coverage. We hypothesize that the EITC may encourage workers to accept lower salaries in return for higher benefits, especially health insurance, because lower salaries make them eligible for the EITC. Using data from the Fragile Families Study, which includes questions that allow us to determine eligibility and EITC application, we find a positive increase in the private health insurance coverage of children and mothers. In addition, we find a larger effect when our comparison group has higher average income. This evidence is consistent with the hypothesis that workers receiving EITC are trading off income for benefits.

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Presented in Session 123: The Effect of Transfer Payments on Household Decisions