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Labor force participation among mothers in the U.S. has increased dramatically over the past several decades, driven in part by social policies that provide benefits that are contingent upon paid work. Little is known, however, about how these work-contingent social policies affect childcare arrangements. We study the effect of the Earned Income Tax Credit (EITC)—one of the largest work-contingent cash transfer programs in the U.S.—on childcare arrangements, using data from the Survey of Income and Program Participation. Our findings suggest that, for children under three, the EITC increased the use of childcare, the number of hours children spent in care, the likelihood of parents paying for care, and the use of multiple care arrangements. It seems to have little effect on childcare arrangements for older children.

AbstractUsing a simulated instrument strategy, we analyze how expansions to the federal and state Earned Income Tax Credits (EITC) affected household finances over the past two decades. Using data from the Survey of Income and Program Participation wealth topical modules, we also test whether responses differ over time, as well as whether there are different responses to the federal and state expansions, and how responses vary by educational attainment. A $1,000 policy‐induced increase in the average household EITC leads to a 3 percentage point increase in the likelihood of holding money in a savings or checking account, and approximately $700 more held in savings balances. These results are coupled with large increases in pre‐tax family earnings. We also find some evidence of decreases in unsecured debt holdings. We interpret these results as further evidence that the EITC increases the financial stability of low‐income single mothers.