No. 2025-22 - The Earned Income Tax Credit and the Intergenerational Persistence of Poverty

Abstract:

This study investigates whether expansions to the Earned Income Tax Credit (EITC) have reduced the intergenerational persistence of poverty in the United States. Using 50 years of Panel Study of Income Dynamics data, we estimate how variation in the generosity of the EITC across time, place, and family size differentially affects the long-run economic circum-stances of children born into poverty versus children not born into poverty. We find that the EITC has favorable long-run effects on pre-tax/transfer poverty overall, but not on post-tax/transfer poverty; instead, public income transfers received in adulthood effectively offset the higher pre-tax/transfer poverty rate among adults benefiting less from EITC expansions. Moreover, whether the EITC reduces intergenerational poverty depends largely on mobility measure, income definition, and model specification. We find that the EITC may reduce an absolute measure of poverty persistence based on pre-tax/transfer income; however, we find consistent evidence that the EITC does not reduce relative poverty persistence or improve any persistence measure based on post-tax/transfer income. Our conclusions are broadly consistent across 1,296 alternative model specifications, and we are able to reconcile our findings with alternative conclusions from prior research. Employment-conditional refundable tax credits likely improve average long-run economic circumstances, but may be less effective than previously understood at reducing the intergenerational persistence of poverty.