The Effects of Additional Household Income on Child Welfare Risk Factors: Evidence from the Expanded Child Tax Credit

Background and Purpose: The relationship between economic insecurity (income poverty and/or material hardships) and the heightened occurrence of child maltreatment and/or Child Protective Services (CPS) involvement is well-documented. Although family poverty itself is not a causal force of child maltreatment, it has been shown to foster environments of instability, lead to declines in parental mental health, increase involvement in or reliance on social services that report parents to child welfare agencies, and embed families in disadvantaged networks. Thus, reducing family economic insecurity through universal child allowances and cash transfers may lower the high visibility that many families in poverty are disproportionately subject to in the child welfare system and improve family dynamics that serve as protective factors against child maltreatment.

The current study aims to address the relationship between family economic insecurity and child welfare risk by estimating the effects of additional monthly cash benefits from the Child Tax Credit (CTC) expansion on common child welfare risk factors among a low-income sample. Child welfare risk factors are measured using three indicators: 1) Aggressive and hostile parenting behaviors, 2) material hardships, and 3) whether the parent/caregiver's (PCG) substance use and/or psychological distress negatively impacted children in the household. Heterogeneous effects of the policy are also analyzed by race and ethnic groups. The policy of interest, the expanded CTC, was a fully refundable monthly benefit that provided low- and middle-income households with children $250 to 300 per month from July 15, 2021 to December 31, 2021.

Methods: The analysis utilizes the 2019 and 2021 panels from the Panel Study of Income Dynamics (PSID) and Child Development Supplement (CDS). To estimate the impacts of a monthly child allowance-type cash transfer on child welfare risk factors among low-income households, I employ a difference-in-differences specification with time and state fixed effects that exploit variations in treatment intensity. The treatment is a continuous indicator of net gain in CTC benefits following the expansion, which is simulated using NBERs TAXSIM and the expanded policy's eligibility criteria. To incorporate the data’s longitudinal design, I also control for child effects to identify changes in the household's child welfare risk factors using data from 2019 while holding constant the household's unique changes between 2019 and 2021.

Results: Preliminary results from the current study indicate improvements in child welfare risk factors following the receipt of monthly transfers from the CTC expansion in 2021. Heterogenous results by race/ethnicity reveal stronger reductions in risk factors for child welfare among families overrepresented by the child welfare system.

Conclusions and Implications: The findings of this study are timely and necessary to address the role of a child-allowance type benefit on child welfare risk factors. Its policy implications inform future child welfare prevention strategies and the role of economic support policies to facilitate these strategies.