The expanded US child tax credit was only recently implemented, and evidence on its impacts is just beginning to be published.74,75 Strong causal studies of cash transfer programs in Alaska and North Carolina, however, provide insight into how child allowances may affect child and parent outcomes in the US.29,50 In addition, rigorous simulations conducted by research groups at The Century Foundation, Columbia University, and the National Academies of Sciences, Engineering, and Medicine (NASEM), among others, have provided estimates for how a child allowance could impact child poverty and family economic security in the US.2,34,35,49 This research is discussed below, grouped by the six policy goals for which evidence is currently available: Parents’ Ability to Work, Sufficient Household Resources, Healthy and Equitable Births, Parental Health and Emotional Wellbeing, Nurturing and Responsive Child-Parent Relationships, and Optimal Child Health and Development.ix
Parents’ Ability to Work
Critics of basic income proposals often emphasize the potential for such policies to depress labor force participation, given that individuals would receive payments regardless of employment status and the transfers could supplant earned income.36 Existing evidence on the impact of child allowance policies from observational studies, quasi-experimental studies, and the international context suggests that these policies do not meaningfully depress labor force participation. For example, a survey of over 1,500 parents in July 2021, before the first expanded child tax credit payments were disbursed, found that 94 percent of parents planned to work the same amount or more after receiving the credit.83
Evidence from Alaska’s Permanent Fund Dividend and from a cash transfer study in North Carolina, in addition to international experiences with child benefits, also suggests that sizeable reductions in labor force participation are unlikely.21,29 For example, a 2010 study took advantage of a natural experiment in North Carolina in which a casino was opened on the Eastern Cherokee reservation, and portions of the profits were provided every 6 months to Native American families (all adult tribal members received the payment, regardless of family composition and income), but not to the non-Native American families in the same 11 counties.29 These groups formed the treatment and control groups, providing an opportunity to examine the effects of an external source of income on child and family outcomes. Although the additional income led to improved educational and social outcomes for youth in the treatment group, the authors did not find significant differencesx in parental employment, suggesting that “households do not alter their labor participation in response to this additional household income” of roughly $3,900 per year (p. 92).29 This finding counters the common objection to cash transfers that predicts depressed labor force participation.
A 2020 working paper examined the impacts of Alaska’s dividend on employment and work hours for both men and women.21 The authors found that the additional income in the economy increased demand for labor, especially in service and retail sectors. For men, each additional $1,000 in dividend funds increased the probability of employment by 1.7 percentage points (from a baseline employment rate of 87%).21 Meanwhile, the $1,000 increase had no effect on the probability of women’s employment overall, but was linked to a modest decrease of about 1.3 hours worked per week (on average) among those who remained in the labor force immediately after the dividend was distributed. Among women with children under age 5, the effect was a decrease of 2.1 hours worked per week. The authors did not measure how this time was re-allocated, but they posited that some of the time may have been invested in children, which could potentially have positive impacts on children’s development. This study offers evidence that basic income policies may actually increase employment among some groups because of the increase in the demand for goods and services, and the increase in demand may outweigh any negative impacts on labor supply or work hours among groups such as women with young children.
A second recent study of Alaska’s dividend also found no adverse effects on employment overall and found a 1.8 percentage point increase in part-time work.36 The authors determined that this increase was not attributable to workers reducing their hours (or leaving full-time positions), but rather reflected new entrants into part-time positions. Similar to the first study, the authors explained that the evidence suggests the dividend increased demand for goods and services in Alaska’s economy.
International research suggests very small and mixed effects of universal child benefits on parental employment in higher-income countries. For example, evidence from a study of Germany’s 1996 child benefit reform revealed that on average, mothers with a working partner reduced their own weekly work time by about 1 hour after the reform (conditional on employment), but their employment rates did not change.30 The study found that single mothers saw an increase of 2.9 percentage points in employment alongside a decrease of 0.8 hours worked per week (on average).
Research on Canada’s benefit found small reductions in mothers’ labor force participation (1 percentage point) and weekly hours worked (1 hour), and even smaller reductions for fathers (less than half a percentage point decline in labor force participation, and a 2.4-minute decline on average in weekly hours worked).31,xi The effects were greatest among mothers and fathers with lower educational attainment, who saw a 3.2 percentage point decline and a 1.1 percentage point decline in labor force participation, respectively.
As a corollary to the concerns about a child allowance or UBI disincentivizing work, some arguments anticipate that a reduction in earned income would offset some of the positive effects of cash transfers. However, evidence from studies on unearned income in the US (including studies on lottery winners) suggests that the effects would be small.36 Evidence from a number of studies on cash transfers converge on an income effect of about -0.1, which suggests that “a 10 percent increase in unearned income will reduce earned income by about 1 percent” (p. 1).36
Sufficient Household Resources
By design, a child allowance policy is intended to directly impact the policy goal of sufficient household resources for families with children by providing a reliable source of supplemental income. Available evidence suggests that cash transfer policies and child tax credits may significantly reduce child poverty and food insecurity.
Initial Findings from Analyses of the 2021 Enhancement of the Federal Child Tax Credit
Analyses of the US Census Bureau’s Household Pulse Survey, which collected responses from families before and after the disbursement of the first monthly child tax credit checks in July 2021, found that the expanded credit was associated with reductions in family financial hardship.74 In particular, researchers found a 7.5 percentage point (or 25%) drop in food insecurity after the disbursement of the first credit payment in households with children with incomes of $35,000 per year or less, relative to similar households with no children, who served as the comparison group.74
Each $100 increase in child tax credit benefits per family was associated with a 4 percentage point decline in families with children reporting food insecurity.74 The analysis did not find significant effects on the likelihood of having difficulty paying household expenses or paying rent or mortgages, but significant effects may appear in future analyses once families have received subsequent installments of the recurring payments. Data from the survey also revealed that families who received the first monthly child tax credit payments spent the funds primarily on food, essential bills, and clothing for their children.78 Families also reported using the funds to pay down debts or to build savings.xii
One analysis found that higher-income families were more likely to receive the first two payments than lower-income families, indicating that further outreach to families who have not previously paid taxes is still necessary to ensure all eligible families benefit from the policy.74 The study also revealed disparate rates of receipt across race/ethnicity groups. Whereas 66 percent of children overall received the first or second payments of the credit, the breakdown by race/ethnicity revealed that 61 percent of Latino/Hispanic children received the payments, 70 percent of Black children did, 61 percent of Asian children did, and 67 percent of White children received the payments.74 The authors described these figures as “general coverage rates and not take-up among the eligible” (p. 13).74 The Center on Budget and Policy Priorities found that although 60 million children have received payments already, an additional 4 million eligible children may be missing out because their families have not previously filed taxes or they have not used the non-filer portal available to claim the child tax credit.80
In addition, an analysis of child poverty rates after the first installment of the expanded child tax credit in July 2021 found that pandemic-related financial relief, including the child tax credit, kept 6 million children out of poverty overall.75 The monthly child poverty ratexiii fell from 15.8 percent in June 2021 to 11.9 percent in July 2021 after the first payments were disbursed, and the authors noted that this change represents 3 million children lifted out of poverty through the credit alone.75
Children experienced different impacts on poverty by race/ethnicity as a result of the child tax creditxiv: White children’s poverty rate was 3 percentage points lower in July 2021 than it would have been without the credit (7.7% compared to 10.7%), Black children’s poverty rate was 4.9 percentage points lower (18.4% compared to 23.3%), Latino/Hispanic children’s poverty rate was 5.6 percentage points lower (16.8% compared to 22.4%), and Asian children’s poverty rate was 2.9 percentage points lower (11.0% compared to 13.9%).75 Even with the credit, Black and Hispanic children continue to experience the highest poverty rates. As take-up of the credit among eligible families increases, Black and Hispanic children are likely to see greater reductions in poverty, as they were more likely to miss out on the first payments as a result of not having previously filed taxes.75
Studies conducted prior to the distribution of the first payments estimated reductions in poverty from the expanded child tax credit that may be realized once families receive the full annual benefit ($3,000 or $3,600, depending on child age). A study by the Columbia University Center on Poverty and Social Policy estimated that the American Rescue Plan would reduce child poverty by 56 percent (or 7.5 percentage points) overall, with much of this reduction owed to the child tax credit expansion.67 The scholars estimated that the poverty rate among Black children would be reduced by 11.8 percentage points, for Hispanic children by 10.3 percentage points, for White children by 5.2 percentage points, and for Asian children by 5.6 percentage points. Despite the significant reductions in poverty for Black and Hispanic children, their poverty rates would still remain high even after accounting for the relief, standing at 9.7 and 9.2 percent, respectively. This analysis used the Supplemental Poverty Measure.
An August 2021 report by the Urban Institute estimated the impact of a permanent expansion of the child tax credit using 2018 data and found similar estimates for the reduction in child poverty.73 The report similarly found that the credit would have a greater impact on reducing povertyxv for Black and Hispanic children compared to White and Asian children.
The Impact of State-Level Child Tax Credits in the US
In addition to the federal child tax credit, six statesxvi have their own state-level child tax credits, although only two of the states have refundable child tax credits.81 The state credits are smaller in value than the federal credit; for example, Idaho’s credit offers $130 per child, and California’s credit offers up to $326 per child.81 A rigorous study found that compared to the EITC, SNAP, and TANF, state-level child tax credits have the smallest impact on poverty because the benefits are not targeted at families in poverty the way that the other programs are, and the benefits are often lower in value.82 However, the state child tax credit was found to boost children’s resources-to-needs ratioxvii by between 0.5 to 1.3 percent, depending on the level of poverty that a family experienced before the credit was applied.82
Evidence from Cash Transfer Programs in the US
Evidence from Alaska’s Permanent Fund Dividend (PFD) program also corroborates that unconditional cash transfers can mitigate poverty in the US. A 2016 working paper by researchers at the University of Alaska’s Institute of Social and Economic Research determined that the PFD had reduced poverty rates in the state by 2.3 percentage points over the previous 5 years.50 This means that 25 percent more people would have lived in poverty in the state had it not been for the cash transfer. In particular, the transfer had strong anti-poverty effects for rural Native American individuals and for children. The authors estimated that without the PFD, the number of children living below the poverty threshold would rise by one-third.
Another study of poverty in Alaska with and without the PFD found that the benefit reduced poverty among residents from 11.4 percent to 9.1 percent, and for rural Native children, the poverty rate was reduced from 32.9 percent to 24.8 percent as a result of the dividend.53
Another source of evidence for how universal cash transfers may affect child poverty is the distribution of stimulus payments to families in 2020 as part of the federal COVID-19 relief efforts. The first round of payments offered $1,200 to adults and up to $500 for eligible dependent children under age 17 (if households fell below certain income caps).77 The second round of payments provided checks for $600 per child or adult. A third round of payments was disbursed in 2021, offering $1,400 per adult or child (for this round, children age 17 were eligible). The most recent poverty data show that when the 2020 stimulus payments (and other government relief) were taken into account, child poverty (using the Supplemental Poverty Measure) dropped to 9.7 percent, down 2.9 percentage points from 12.6 percent in 2019.76 Analyses revealed that the stimulus payments were responsible for keeping 3.2 million children out of poverty in 2020.76
Evidence From the International Context and From Simulations
In the international context, universal child benefits in 15 OECDxviii countries have reduced poverty in households with children by up to 5 percentage points on average.3 Evidence from Canada, for example, supports the claim that universal child benefits can reduce family poverty.46 In the 2017 to 2018 Canadian benefit year, the child benefit reduced family poverty by 27 percent, keeping 277,000 families out of poverty.46 The benefit lifted 37 percent (or 131,600 total) of single-parent families above the poverty line. A 2021 working paper also examined the anti-poverty effects of the Canadian child benefit and found that the benefit reduced poverty among single-mother families by 5 percentage points from 2014 to 2018 relative to single women with no children, who served as the control group.68 The study identified no significant effects on labor force participation, whether in terms of employment status or hours worked.
Some critics of basic income policies have argued that the additional cash may be spent on “temptation goods,” such as alcohol, tobacco, or unhealthy foods. However, a 2015 study of the Canadian child benefit found that spending increased on education, rent, food, transportation, and child care as a result of the policy, but decreased on items such as alcohol and tobacco.44 A 2014 review of global evidence on this issue, conducted by The World Bank, found that cash transfers either have no effect or are linked to significantly lower consumption of such “temptation goods.”45
A number of simulation studies have estimated how a permanent child allowance in the US could impact poverty, especially in comparison to the child tax credit as it existed before the 2021 reform. For example, a 2018 study co-authored by a group of prominent child policy scholars estimated that a $250 per-month, per-child allowance could reduce child poverty by 6.4 percentage points (or 40%, from a 16.1% to a 9.7% poverty rate using the Supplemental Poverty Measure).2 Their proposal also examined a tiered model, in which children under age 6 would receive a slightly higher allowance at $300 per month, and this model produced a greater estimated reduction in young child poverty. The study also assumed that the child allowance would be implemented alongside the elimination of the child tax deduction and child tax credit, but with the EITC and TANF programs kept intact. The authors estimated that the net cost of a child allowance policy, after factoring in savings from the eliminated policies, would range from $66 billion to $105 billion depending on the design of the allowance (compared to $97 billion spent annually on the child tax credit and tax deduction). This finding indicates that for a similar or lower annual cost, a child allowance could replace some of the current anti-poverty tax policies while achieving a greater reduction in poverty.
An analysis published by The Century Foundation in 2016xix compared child tax credit expansions to possible child allowance policies and concluded that “child allowances that achieve equal reductions in poverty when compared to expansions of the child tax credit actually cost less to implement” (p. 2).34 The authors analyzed child allowance policies of varying generosity levels and determined that an annual $2,500 allowance per child under age 6 only (alongside the child tax credit) could lift 3.2 million children out of poverty (reducing child poverty by 12% or 2 percentage points, using the Supplemental Poverty Measure), and a $4,000 child allowance for all children under age 18 (with no child tax credit) could lift 8.1 million children above the poverty level (reducing child poverty by 59% or 11 percentage points).34
The National Academies of Sciences, Engineering, and Medicine (NASEM) conducted a rigorous review of various anti-poverty policies for children and families in a 2019 report, and the study included a simulation of two possible child allowance policiesxx (of $2,000 or $3,000 per year, alongside the elimination of the pre-2021 child tax credit and deduction).35 Of the 20 policy scenarios that NASEM analyzed (including increases or expansions in the EITC, SNAP, child care subsidies, and the minimum wage, among others), the child allowance policy of $3,000 per year came closest to achieving the goal of reducing child poverty by 50 percent in the US, lifting 4 million children out of poverty. The authors determined that such a policy could produce a 5.3 percentage point reduction in poverty (using the Supplemental Poverty Measure, and after factoring in possible negative employment effects) and would cost approximately $54 billion.35
Healthy and Equitable Births
Existing evidence supports positive impacts of cash transfers on birth outcomes, but further research is needed.38 A rigorous 2016 study of Alaska’s Permanent Fund Dividend (PFD) found that each $1,000 in additional income provided by the dividend was linked to an increase in birthweight of 17.7 grams and decreased the likelihood of low birthweight by 14 percent.38 The effect was greatest among lower-educated mothers. The PFD was also found to increase newborns’ Apgar scores, a measure of health at birth, by 0.063 points (from an average score of 8.87).38
Given that other policies that increase income (such as the earned income tax credit40 and higher minimum wages41) have been linked to better birth outcomes in rigorous research, it is likely that a child allowance or UBI policy in the US could have a positive effect on healthy births as well.
Parental Health and Emotional Wellbeing
This review identified no rigorous US-based studies of child allowances or UBI policies that examined parental health and wellbeing, but findings from studies of conditional cash transfers and from small pilot programs suggest that parents could benefit from a child allowance. For example, the Family Rewards conditional cash transfer program in New York City and Memphis, Tennessee, found that the income supplement of about $2,000 per year “led to improvements in parents’ reports of life satisfaction and happiness,” (p. iii) and results suggested that the program improved parents’ self-reported health for those in poorest health at the beginning of the program.39
A small basic income pilot targeted at Black mothers in Jackson, Mississippixxi found that all 20 participants “reported worrying less because of their met needs” as a result of a $1,000 per month cash transfer (p. 1).26 A 2011 study of Canada’s child benefit found that the additional income was linked to a significant decrease in maternal depression scores on a screening tool, so it is plausible that a child allowance could have similar effects on mothers’ mental health in the US.43
Survey results after the first expanded US child tax credit payment found that 56 percent of respondents reported a reduction in financial anxiety after receipt of the credit.79 More rigorous research is warranted to determine the causal impact of the credit on parents’ health and wellbeing.
Nurturing and Responsive Child-Parent Relationships
The 2010 casino cash transfer study described earlier in this review found that some aspects of child-parent relationships significantly improved in the treatment group (Native American families) relative to the control group.29 For example, the authors measured a statistically significant increase of 3 to 5 percent in parental supervisionxxii of children (for both mothers and fathers) and a 4 percent increase in “enjoyable” child-parent activities that occurred between mothers and children in the study as a result of the cash transfer (but not for fathers). The authors did not identify a specific causal mechanism through which the transfer worked to improve the relationships, given that parents were not spending less time at work, but they noted that this is an area for further research.
Optimal Child Health and Development
Poverty has been linked to worse health and developmental outcomes for children in decades of research.37 A monthly child allowance may mitigate some of these effects, leading to better physical and mental health for young children. This review identified three US-based studies that examined child health outcomes in the context of an unconditional cash transfer; one study looked at outcomes at age 3, and two studies looked at long-term outcomes when the children were teenagers or older.
A 2019 study examined the impacts of Alaska’s PFD on childhood obesity and determined that each additional $1,000 in payments decreased the likelihood of obesity at age 3 by 4.5 percentage points.20 The authors estimated that by reducing childhood obesity, the dividend may save the state $2 million to $10 million annually in medical costs. The study did not examine mechanisms underlying this effect, but the authors suggested that additional income may allow for the purchase of healthier, more nutritious foods.
The 2010 casino cash transfer study in North Carolina, mentioned previously, found that the treatment group (Native American children) completed more years of education and reported lower criminal involvement and drug use than the control group (a 22% reduction in minor crime activity for 16- and 17-year-olds).29 Another analysis of this transfer program found that the additional income led to an increased Body Mass Index (BMI) for adolescents in families with average incomes below $30,000, but not for those with higher family incomes.52 Impacts on other health outcomes, such as asthma, allergies, headaches, and eczema, were not statistically significant. The authors explained that their findings may shed light on possible unintended effects of cash transfers for adolescents in low-income households.
Another analysis of the North Carolina study found that significantly fewer of the Native American adults who had received the cash transfers as children had diagnosed psychiatric disordersxxiii later in life, compared to the control group (30.2% compared to 36%).42 Effects were greatest for those who were in the youngest cohort, who had received the cash transfer for longest.
A study of the Canadian child benefit found that among households with lower parental educational attainment, the additional family income significantly improved children’s math scores (as part of a test administered for the National Longitudinal Survey of Children and Youth) and decreased the frequency of indirect aggression/social conflict with other children.43
- Unlike most of the other evidence reviews in the Prenatal-to-3 Policy Clearinghouse, this evidence review does not yet include an Evidence of Effectiveness table with lettered studies (indicating strong causal studies that speak directly to the impacts of the policy on the eight prenatal-to-3 policy goals) because no state-level child allowances have been implemented in the US. The effects of similar policies are discussed throughout the review, however.
- An impact is considered statistically significant if p≤0.05. Results with p-values above this threshold are considered null or nonsignificant.
- See Table 3, Panel A on p. 455 of the study.
- The most commonly reported categories were, in order: food, essential bills, clothing, rent/mortgage, school expenses, pay down debt, savings/investment, child care, other, gifts/toys/recreation, tutoring/after-school programs, and charity/family support (p. 1).78
- Using the Supplemental Poverty Measure, which considers taxes paid and government assistance received.
- Table 1 on p. 7 of the study provided the race/ethnicity data discussed here.
- In terms of the percentage point reduction in the poverty rate.
- The states are California, Colorado (refundable, only available for children age 5 and younger), Idaho, New York (refundable but children must be over age 4), North Carolina, and Oklahoma.
- This measure represents the ratio of a family’s resources, using the Supplemental Poverty Measure’s methodology, to the SPM poverty threshold.
- The OECD is the Organization for Economic Cooperation and Development, an international group of 38 member countries focused on promoting trade and economic progress across the world.
- The report was published prior to the 2017 expansion of the child tax credit that offered $2,000 per child and refunded up to $1,400.
- The proposal included stipulations that the child allowance benefit would be “neither taxable for income tax purposes nor countable for means-tested benefits” (p. 430).35
- This pilot is discussed further in the section of this review entitled “How Do Child Allowance Policies Vary Across the States?”
- This was a self-reported measure of whether the parent has “adequate control or knowledge of the child’s whereabouts” (p. 98).
- Results were significant for “any psychiatric disorder,” “any substance use disorder,” “alcohol abuse/dependence,” and “cannabis abuse/dependence,” but not for “nicotine dependence,” “other drug abuse/dependence,” “any emotional disorder,” and “any behavioral disorder.”