New Evidence on the Long-term Impacts of Tax Credits1

An important rationale for tax credits is to improve opportunities for children born to low-income families. We combine data on children in a large urban school district with administrative tax records to estimate the impact of tax credits on children’s future earnings and other long-term outcomes. Our analysis consists of two parts. We first identify the impacts of tax credits on test scores using non-linearities in tax credits as well as time-series variation in program generosity. We find that a $1,000 increase in tax credits raises students’ test scores by 6% of a standard deviation, using our most conservative specification. We then examine the implications of these score gains for earnings using assignment to teachers as an instrument for score. We show that higher scores increase students’ probability of college attendance, raise earnings, reduce teenage birth rates, and improve the quality of the neighborhood in which their students live in adulthood. Our results suggest that a substantial fraction of the cost of tax credits may be offset by earnings gains in the long run. NEW EVIDENCE ON THE LONG-TERM IMPACTS OF TAX CREDITS 2