How Does Income Affect Mental Health and Health Behaviors? A Quasi-Experimental Study of the Earned Income Tax Credit
Abstract
BackgroundÂ
Although research has repeatedly demonstrated the association between poverty, mental health, and health behaviours, there is limited evidence on the effects of interventions to improve these outcomes by addressing poverty directly. Moreover, most prior studies are often confounded by unobserved characteristics of individuals, making it difficult to inform possible interventions. This study addressed this gap in the literature by leveraging quasi-random variation in the earned income tax credit (EITC)—the largest US poverty alleviation program for families with children—to examine the effects on overall health, psychological distress, smoking, and alcohol consumption.
MethodsÂ
This study used a large diverse national sample drawn from the Panel Study of Income Dynamics (N=34 824). Researchers first conducted ordinary least squares (OLS) models to estimate the association of income and the EITC with the outcomes of interest. They subsequently employed a quasi-experimental instrumental variables (IV) analysis—in which EITC refund size was the instrument—to estimate the effect of income itself.
ResultsÂ
In OLS models, higher income was associated with reductions in psychological distress, increased alcohol use, increased smoking, and more cigarettes per day, and larger EITC refunds were associated with reductions in psychological distress. In IV models, higher income was associated with decreased psychological distress.
ConclusionÂ
These results suggest that typical correlational studies of the health effects of income may be confounded, although results may not generalise to income distributed in different ways than the EITC. The findings also provide valuable information for policymakers and researchers seeking to address socioeconomic disparities in mental health.
