PU685 Unit 8 Policy Impact Paper Example

A Tax Credit Mailed in February, a Birth in October: A Unit 8 Policy Impact Paper Estimating What a Composite State's New Refundable Earned Income Credit Did to Low Birth Weight, and Why the First Estimate Is Too Good

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Purdue University Global

PU685: Issues and Concepts in Maternal and Child Health

Unit 8 Policy Impact Paper

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[Date]

The state, its credit and its birth counts are composite; the study design, the earlier findings and the research cited are real.

The Policy

The federal earned income tax credit pays working families with low earnings a refundable credit that rises with earnings, plateaus and then phases out. Many states add their own credit as a percentage of the federal amount. In 2019 the composite state adopted a refundable credit equal to 20 percent of the federal credit. For a family with two children receiving an average federal credit of about 3,000 dollars, the state credit adds roughly 600 dollars a year, most of it arriving as part of a tax refund in February or March.

Why Income Might Change Birth Outcomes

The pathways are plausible: income can pay for food, housing and transport to prenatal care, and it can reduce stress. Evidence supports them. Using variation from federal tax reforms, one study found that each 1,000 dollars of EITC income reduced the incidence of low birth weight by 2 to 3 percent, with more prenatal care and less smoking among the likely mechanisms (Hoynes et al., 2015). An analysis of state credits found more generous state EITCs associated with higher birth weights and less smoking in pregnancy (Strully et al., 2010).

What That Evidence Predicts Here

If 1,000 dollars lowers low birth weight by 2 to 3 percent, then 600 dollars should lower it by roughly 1.2 to 1.8 percent in relative terms among recipients. Among the group studied below, where low birth weight ran at 10.2 percent before the policy, that is a decline of about 0.12 to 0.18 percentage points. Not every mother in the group receives the credit, so the expected effect on the whole group is smaller still. Low birth weight is also a blunt outcome; most of the income effect in earlier work showed up as small shifts in mean birth weight that move only a few infants across the 2,500 gram line, which is another reason to expect a modest change. The prior evidence predicts an effect smaller than a fifth of a percentage point, and any estimate much larger than that needs an explanation before it is believed.

Design

Birth certificates do not record tax credits, so the paper compares groups by their likelihood of eligibility. The treatment group is births to unmarried mothers with a high school education or less, most of whom have earnings in the credit's range. The comparison group is births to married mothers with a college degree, few of whom qualify. The difference-in-differences estimate compares the change in low birth weight in the treatment group, before and after 2019, with the change in the comparison group over the same years. The design rests on an assumption that, absent the credit, low birth weight in both groups would have moved in step, which the paper checks by plotting both groups for five years before 2019.

Results

1. Treatment group, 2016 to 2018: low birth weight 10.2 percent of 41,600 births.

2. Treatment group, 2020 to 2022: 9.6 percent of 39,900 births.

3. Comparison group, 2016 to 2018: 6.1 percent of 52,300 births.

4. Comparison group, 2020 to 2022: 6.0 percent of 54,800 births.

The treatment group fell by 0.6 percentage points and the comparison group by 0.1, so the difference-in-differences estimate is a decline of 0.5 percentage points, about 5 percent in relative terms. Pre-policy trends were roughly parallel, with the treatment group's rate drifting between 10.1 and 10.4 percent from 2014 to 2018.

Why the First Estimate Is Too Good

The estimate is about three to four times larger than the prior evidence predicts, and the post-policy years coincide with the largest disruptions to family income and coverage in decades. From March 2020 Medicaid enrollees kept continuous coverage under the federal public health emergency, which would have reduced coverage gaps before and between pregnancies, and it affected the treatment group far more than the comparison group. Pandemic stimulus payments and the 2021 expansion of the federal Child Tax Credit also reached the treatment group disproportionately. Each of these could lower low birth weight in the treatment group, and none is the state credit. Two checks help. First, an event-study plot by year shows no decline in 2019, the first tax season under the new credit, with most of the change concentrated in 2021. That timing fits pandemic-era supports better than the state credit. Second, the same comparison in a neighboring state with no new credit shows a decline of 0.4 percentage points over the same years, close to this state's estimate. Together they suggest that most of the observed decline would have happened without the policy. Standard errors in designs like this also need to account for correlation within states over time, or they overstate precision (Bertrand et al., 2004).

Conclusion

The best reading is that the state credit probably lowered low birth weight among recipients by a small amount consistent with earlier research, and that the 0.5 point decline mainly reflects pandemic-era coverage and income supports. The policy may still be worth its cost for its effects on family income, but the state should not cite this estimate as its birth outcome effect.

What the Legislature Should Hear

Legislators asked a simple question: did the credit improve birth outcomes? The honest answer has three parts, and the paper recommends giving all three in the same paragraph. First, earlier research using stronger designs shows that income from these credits does modestly reduce low birth weight, so an effect is plausible. Second, this state's own data show a decline larger than that research predicts, but the timing and the neighboring state comparison point to pandemic-era supports as the main cause. Third, the state cannot yet isolate its credit's effect, and a link between tax and birth records would allow it within two years. Reporting the 0.5 point decline alone would invite a later correction that damages the credibility of the health department's analyses on other questions. Reporting nothing would waste a natural experiment the state has already paid for.

Recommendations for Evaluation

1. Link tax records to birth records under a data-sharing agreement, so recipients can be identified directly.

2. Repeat the analysis using 2024 and later births, after continuous Medicaid coverage ended.

3. Report expected effect sizes from prior research alongside any estimate.

References

Bertrand, M., Duflo, E., & Mullainathan, S. (2004). How much should we trust differences-in-differences estimates? The Quarterly Journal of Economics, 119(1), 249-275. https://doi.org/10.1162/003355304772839588

Hoynes, H., Miller, D., & Simon, D. (2015). Income, the earned income tax credit, and infant health. American Economic Journal: Economic Policy, 7(1), 172-211. https://doi.org/10.1257/pol.20120179

Strully, K. W., Rehkopf, D. H., & Xuan, Z. (2010). Effects of prenatal poverty on infant health: State earned income tax credits and birth weight. American Sociological Review, 75(4), 534-562. https://doi.org/10.1177/0003122410374086