Foster care and the earned income tax credit

Abstract

Foster care is a source of significant costs to both governments and foster children. Policies that provide income support to households potentially reduce entry into foster care via reducing child maltreatment and improving child behavior. As part of the American Recovery and Reinvestment Act in 2009 (ARRA2009), the federal government expanded the earned income tax credit (EITC), which is an important income support program for low-income working households. Using state-level data, we investigate the impact of this EITC expansion on state-level foster care entry rates. Typically, states with state-level EITC match federal EITC spending at a specific rate, meaning that increases in federal EITC spending increase state-level spending as well. We find that expansion of EITC decreased foster care entry rates by 7.43% per year in states with a state-level EITC, relative to those without. In models that separately examine foster care entry rates by age of the child, we find that the ARRA2009 had different effects on foster care entry based on the child’s age. We find that ARRA2009 decreased foster care entry rates for children age 11–15 by nearly 12% in states with a state EITC and it decreased foster care entry rates for children age 16–20 by roughly 17% in states with a state EITC, relative to states without a state EITC.

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Notes

  1. 1.

    Federal, State, and Local Spending to Address Child Abuse and Neglect SF2012. http://www.childtrends.org/wp-content/uploads/2014/09/2014-47ChildWelfareSpending2012.pdf.

  2. 2.

    Widom and Michael (2001) find that being a victim of childhood maltreatment increases the likelihood of becoming a criminal.

  3. 3.

    Jonson-Reid et al. (2004) find that maltreated children are more likely to require special education.

  4. 4.

    These estimates are for nonfatal child maltreatment.

  5. 5.

    Jim Casey Youth Opportunities Initiative: The Annie E. Casey Foundation. http://www.jimcaseyyouth.org/about/aging-out.

  6. 6.

    “Cost of Abuse and Neglect Rival Other Major Public Health Problems” (2014).

  7. 7.

    Fang et al. (2012) estimated the present value of productivity losses in fatal maltreatment cases to be $1,258,800.

  8. 8.

    Tax Foundation: http://taxfoundation.org/article/changes-refundable-tax-credits.

  9. 9.

    Center on Budget and Policy Priorities: The Earned Income Tax Credit (2015). http://www.cbpp.org/research/federal-tax/policy-basics-the-earned-income-tax-credit?fa=view&id=2505.

  10. 10.

    Tax Policy Center, http://www.taxpolicycenter.org/briefing-book/key-elements/family/eitc.cfm.

  11. 11.

    Eligibility requirements are explained in more detail here, https://www.irs.gov/uac/Newsroom/Earned-Income-Tax-Credit-Do-I-Qualify.

  12. 12.

    See https://www.irs.gov/ for more information.

  13. 13.

    States with non-refundable SEITCs are included in this analysis. We estimated the models without states with non-refundable SEITCs, and we also estimated with states with non-refundable SEITCs and an indicator for a non-refundable SEITCs. Results are similar in all cases so are not included here.

  14. 14.

    See http://datacenter.kidscount.org/ for more information.

  15. 15.

    See http://www.taxpolicycenter.org/ for more information.

  16. 16.

    In states where foster care entry ends at age 18, the denominator should be a state’s child population of all individuals from birth through age 18. Models were estimated below with this definition of entry rate and results were similar. We have also estimated models with a dummy variable for states that expanded foster care services to youth up to age 21 and results were similar so not included here.

  17. 17.

    Because the panel includes only states that do not change whether they have a state EITC over the panel, the direct state EITC effects are captured in the state fixed effects.

  18. 18.

    Appendix Table 1 provides a full set of results with all control variable estimates.

  19. 19.

    To have a cleaner pre- and post-period, the estimating sample does not include 2009 observations. Estimates were also done including 2009 and the results are similar.

  20. 20.

    We have estimated the age 16–20 models where the denominator is a state’s 16–18 year old population because some states emancipate foster care youth after age 18 and the results described below are similar.

  21. 21.

    All three juvenile outcome variables are aggregated to the state-level and provided by the National Kids Count Data Center, but they come from different sources. Maltreatment rates of youth age 14–17, like foster care entry rates, are collected by AFCARS but held and distributed by NDACAN. Estimates on binge drinking and illicit drug abuse of youth age 12–17 come from estimates of substance use from the National Survey on Drug Use and Health conducted by the Department of Health and Human Services.

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Correspondence to Amelia M. Biehl.

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Appendix

Appendix

Table 11

Table 11 Effect of EITC on foster care entry rates

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Biehl, A.M., Hill, B. Foster care and the earned income tax credit. Rev Econ Household 16, 661–680 (2018). https://doi.org/10.1007/s11150-017-9381-1

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Keywords

  • Foster care
  • Earned Income Tax Credit
  • American Recovery and Reinvestment Act of 2009
  • Difference-in-difference

JEL Classification

  • I38
  • H31
  • J13