Has the Child Tax Credit Increased Fertility in the United States?

James M. Sallee, University of Michigan

This paper examines the effect of tax breaks associated with children on fertility decisions in the United States. The tax code in the United States implicitly encourages childbearing because it provides substantial preferential treatment to families with children. One element of the tax code, the Child Tax Credit (CTC), creates a natural experiment that allows estimation of the causal effect of monetary incentives on fertility. The CTC, begun in 1998, provides up to $1000 per child for eligible families. Eligibility depends on income, which enables a difference-in-difference identification strategy. Analysis of the program is valuable to the policy community because the CTC is similar to pronatalist policies that many governments have adopted or are considering. Preliminary estimates of March Current Population Survey data imply large effects: a $1000 increase in the CTC is associated with a 10% rise in the probability of having a child for married women.