Effects of the CTC on Household Spending

Published: https://www.povertycenter.columbia.edu/publication/expanded-child-tax-credit-on-household-spending

Date: June 30th, 2023

The Child Tax Credit was substantially expanded through the American Rescue Plan Act of 2021, making the benefit more generous, fully refundable, and more periodic. Early studies documented the positive impact of the expanded Child Tax Credit on reducing poverty and food insufficiency, but there is little research on the impact it had on household spending and, specifically, its impact on child-related spending. We use data from the Consumer Expenditure Interview Survey and impute Child Tax Credit payments for all qualifying households to examine whether the expanded Child Tax Credit increased spending overall, in major categories, and on specific items related to children's education and development.

Our findings indicate that families utilized the Child Tax Credit payments to enhance the well-being of both their children and the entire household. For each $100 of imputed Child Tax Credit payment, our models show that families spent $75, mainly on food ($28), housing ($31), and child-related goods and services ($15). We also found that the spending response for low-income households, Hispanic households, and non-Hispanic Black households was larger than the spending response of the average household. By analyzing the variation in spending response by race and ethnicity, we are providing policy makers with valuable insights into the experience of marginalized communities.

Read the article here.