Factsheet: What the research says about the economics of the 2021 enhanced Child Tax Credit

Research finds that the 2021 enhanced Child Tax Credit improved the well-being of U.S. children and their families

• Recent (opens in a new tab) research (opens in a new tab) by economist Zachary Parolin and his co-authors at Columbia University estimates that the CTC expansion reduced child poverty by 40 percent.¹⁷⁴

• The enhanced Child Tax Credit also supported families with children by reducing food insecurity, lowering reported difficulties affording expenses, and cutting the rate of missing housing payments. (See Figure 2.)

Figure 2

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• Recent research (opens in a new tab) by Natasha Pilkauskas and her colleagues at the University of Michigan finds that the enhanced Child Tax Credit reduced the number of food hardships by nearly a third for the average low-income family receiving the credit.¹⁷⁵

• Pilkauskas and her co-authors also find that the expansion significantly reduced the experience of medical hardship among low-income families.¹⁷⁶

• A large body of literature on financial transfers similar to the Child Tax Credit finds beneficial effects (opens in a new tab) in the areas of health, education, and adulthood earnings.¹⁷⁷

Research finds that the 2021 enhanced Child Tax Credit did not affect parental work effort

• More research by Parolin and his co-authors compares changes in U.S. labor supply for households with children versus those without, finding no consistent differences in the monthly employment outcomes of these two groups around the time of the CTC expansion.¹⁷⁸

• More research by Natasha Pilkauskas and her co-authors does not find a statistically significant relationship between employment and the CTC expansion among families in their sample, suggesting that the expansion did not deter work.¹⁷⁹

• Simulations, which use estimates from existing research to predict the effects of the enhanced Child Tax Credit in the future rather than measuring actual effects from the 2021 expansion, find mixed results that are contingent on their assumptions. Of the three most prominent simulations of a permanent CTC expansion, two (opens in a new tab) suggest (opens in a new tab) that labor supply effects would be small.¹⁸⁰ One suggests (opens in a new tab) that they would be substantial.¹⁸¹

The design of the enhanced 2021 Child Tax Credit improved racial and socioeconomic equity in the program

• Columbia University researchers find (opens in a new tab) that prior to the temporary expansion, about one-third of children lived in families that earned too little to receive the Child Tax Credit, and that children of color, rural children, and young children are overrepresented in this group.¹⁸²

• The design of the enhanced 2021 Child Tax Credit removed structural barriers, such as earnings requirements, and research suggests that many families with children who had previously been carved out of this income support received it. Specifically:
  • Early survey evidence (opens in a new tab) reported by Katherine Michelmore and her University of Michigan colleague Pilkauskas suggests that approximately two-thirds of very low-income families received monthly CTC payments.¹⁸³

• Yet research suggests that some barriers remained.
  • Questions still surround why roughly 1 in 5 low-income families did not receive payments (opens in a new tab).¹⁸⁴
  • Some low-income families did not receive the monthly payments because they opted for one lump sum (opens in a new tab) in 2022.¹⁸⁵
  • A remaining barrier may be that families who wouldn’t ordinarily file taxes may not have known about their newfound eligibility. Indeed, families with little or no earnings had substantially lower rates of receiving the expanded Child Tax Credit in the first several months of the expansion.¹⁸⁶ (See Figure 3.)

Figure 3

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• Language barriers (opens in a new tab) also may have affected access. Pilkauskas and Michelmore find lower rates of receipt among respondents who took the survey in Spanish, despite high rates of tax filing.¹⁸⁷

Policy implications

Research broadly supports a permanent expansion of the Child Tax Credit. There seems to be a consensus that such a policy would improve well-being. The trial expansion of the enhanced Child Tax Credit in 2021 did not seem to cause parents to work less. Most simulations of a permanent expansion of this income support suggest that labor disincentives would be small.

Indeed, the primary argument for not expanding the Child Tax Credit is that it would allow low-income parents to work less, which would work against the program’s goal of reducing child poverty. Yet a large body of evidence on income support for children makes a strong case that these policies tend to improve children’s well-being, as well as their socioeconomic outcomes in adulthood, thus boosting U.S. economic productivity and growth over the long term.