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Tax credits for child care increase take up and may help more mothers work

Description:
In 2003, the Economic Growth and Tax Reconciliation Act expanded the CDCC and led to large increases in both state and federal CDCC expenditures. To understand who benefited from the CDCC before and after its expansion, I document CDCC eligibility and expenditures over time and across income and demographic groups. I find that around the time of the expansion, about 20 percent of households qualified for CDCC benefits and that the majority of federal expenditures were allocated toward low- and middle-income taxpayers. I then estimate the effects of benefit increases on paid child care participation and parent employment outcomes. I find that among households with eligible dependents, a 20 percent increase in CDCC benefits—an additional $150 on average for those receiving benefits at baseline and about the typical increase within that group—raises annual paid child care participation by 2 percentage points, or about 10 percent. I also find that CDCC benefits increase work and earnings among married mothers. In particular, evidence suggests that CDCC benefits help married mothers remain in the labor force around childbirth, which may subsequently lead to increases in their lifetime earnings. (author abstract)
Resource Type:
Fact Sheets & Briefs
Author(s):
Country:
United States

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