Early exposure to child care tax credits has mixed long-term health effects on children

The US Child and Dependent Care Tax Credit (CDCTC), which helps offset a portion of child or dependent care expenses, requires that both parents in married households, or the primary caregiver in single-parent and divorced households, participate in paid employment. Research published in Health Economics reveals that early childhood exposure to the CDCTC may affect children's long-term health in complex ways.

The study is based on data from the Child Development Supplement of the Panel Study of Income Dynamics, which was started in 1968 with a nationally representative sample of around 5,000 families in the United States and that surveys all family members of the respondents and their descendants to this day.

Investigators found that children and adolescents of more-educated mothers had worse physical and mental health outcomes when they were exposed to more intensive CDCTC benefits in early life. In contrast, children and adolescents of less-educated mothers showed improvements in their mental health with such exposure.

The different findings may relate to varied effects of the CDCTC. An income effect arises because the CDCTC reduces childcare costs, effectively increasing the family's disposable income that could be used for nutritious food, better housing, and other benefits. A substitution effect occurs when the CDCTC pushes mothers into the labor market, leading children to spend additional hours in formal childcare, which can impact child health.

"This study highlights the need for careful policy designs that consider the varying needs of families with different socio-economic status," said corresponding author Yating Gong, PhD, of Jinan University, in China.