When the economy tanks, subsidy programs like the Earned Income Tax Credit can become unintended safety-nets for lower income working families trying to make ends meet. A new study by UCI economist Marianne Bitler looks at this program’s new role, finding that married couples with children benefit more from the subsidy when times are worse than do single parent households, who otherwise constitute the majority of EITC recipients.

“Subsidies to increase resources for low-income families in the United States increasingly take the form of transfers or tax credits that are linked to employment,” says Bitler. One of the defining features of the EITC is that it requires positive earnings for eligibility; it is not intended to provide insurance against economic shocks like a recession. But, given its large role in replacing cash welfare, what happens to use of the EITC when there is only one working parent in a household and that wage earner loses his or her job?

“Job loss for a single earner generally eliminates family earnings altogether, potentially rendering them ineligible for participation in the EITC at a time when a safety net of some sort may be needed most,” she says.

Her findings pull together tax data from the Internal Revenue Service between 1996 and 2008. The dataset provides an opportunity to account for differences in the timing and severity of economic cycles across states, Bitler says. Results show that when unemployment in the U.S. goes up, so, too, does the number of EITC recipients.

“The earnings requirement of the EITC, combined with where in the distribution of earnings the single versus married individuals are, means that these new recipients who get the EITC in downturns are primarily coming from married families,” she says. “Job loss likely leads to a reduction in participation by single parents with children.”

Bitler cautions those in the policy community to take into account how the business cycle may adversely affect program use by different types of families.

Findings are published in the June issue of the National Bureau of Economic Research Digest.

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