The Effects of the Earned Income Tax Credit on Mental Health in South Korea

Background: We analyzed the effects of the Earned Income Tax Credit (EITC) on mental health in South Korea. The Korean government has made efforts to alleviate income inequality through public assistance and tax systems for the low-income households. In Korea, the EITC was introduced in 2008 and since then its budget and benefits are gradually expanded in order to induce the poor to work and guarantee more income. Unlike the United States where there are many studies analyzing the effects of the EITC on mental health outcomes, in Korea there are few studies verifying the effects of the EITC on mental health outcomes for the low-income households. Therefore, our study is the first attempt to test whether the EITC improves recipients' mental health outcomes.

Methods: We used the Korean Welfare Panel (KoWeps) data that covered the 5^th wave (2010) to the 14^th wave (2019). For analysis, we employed the fixed-effects model to conduct panel regression analyses. The treatment group was the household heads and spouse who receive the EITC, and the control group was set up as the low-income households that are similar to the treatment group in terms of earned income and assets. Of the samples, 10,687 individuals were used for the analysis. The mental health outcomes as dependent variables were operationalzed by depression, self-esteem, and family relationship satisfaction.

Results: We found that the households who received the EITC have lower depression on average than those who did not receive the EITC (-0.697; p=0.309), and their self-esteem (B=-0.013; p=0.712) and family relationship satisfaction (B=0.345; p=0.309) are higher on average, but not statistically significant. Second, we compared households with children and households without children within the treatment group. As a result, it was not statistically significant, but the depression of the household with children was relatively lower (B=-1.460; p=0.108), and the self-esteem (B=0.060; p=0.212) and family relationship satisfaction (B=-0.964; p=0.409) were relatively higher.

Conclusions: The effects of the EITC on depression, self-esteem, and family relationship satisfaction are not statistically significant, but it is interpreted that the policy has worked in a positive direction as the average of the mental health of the household heads and spouse who receive the EITC showed relatively better results. Our study found that the possibility that the EITC has played important roles in improved mental health outcomes for the low-income households.