No. 2026-28 - State Child Tax Credits and Parental Labor Supply: Evidence from Staggered Adoption

Abstract:

States increasingly supplement the federal Child Tax Credit (CTC) with credits that vary in generosity, refundability, and earnings requirements. We examine changes in parental employment, labor force participation, and work hours following state CTC adoption using the Current Population Survey Annual Social and Economic Supplement (CPS-ASEC), 2004–2026. Our preferred stacked difference-in-differences design includes 12 adopting states with complete event-time support and compares them with never-treated states and states that adopted after our evaluation window. Averaging over the first three post-adoption survey years, the estimated effect is 0.05 percentage points (SE 1.03) for employment and −0.46 points (0.82) for labor force participation; estimates for work hours are also close to zero. Across secondary specifications and CPS Basic Monthly analyses, extensive-margin estimates were similarly small. Larger simulated benefits are associated with fewer hours among employed parents, but the relationship is also evident before adoption and may partly reflect how benefits depend on earnings. Overall, the estimates provide little indication that state CTC adoption has substantially reduced parental employment, although meaningful effects in either direction cannot be ruled out under moderate departures from parallel trends.