How does income affect mental health and health behaviours? A quasi-experimental study of the earned income tax credit

Using a large diverse national data set and a quasi-experimental design, Rita Hamad, MD, PhD, and colleagues detail the findings of their study which examined the effects of the earned income tax credit (EITC)—the largest US poverty alleviation program for families with children—on mental health and health behaviors. Published in the Journal of Epidemiology and Community Health, this study comes at an important time, when the EITC has been expanded as part of recent federal COVID relief policies, and when there is much focus on the health effects of economic policies more generally.

Hamad and colleagues used a large national data set of US adults, leveraging variation in the EITC and quasi-experimental analyses.
Increased income was associated with reduced psychological distress, increased drinking, and increased smoking, although models that leveraged the quasi-random variation in the EITC found an association only with reduced psychological distress. Since it is contingent on employment and distributed as a lump sum, the EITC may have different health effects than other policies to increase income through other mechanisms.

Hamad and colleagues used a large diverse national sample drawn from the Panel Study of Income Dynamics (N=34?824). The researchers first conducted ordinary least squares (OLS) models to estimate the association of income and the EITC with the outcomes of interest. They next employed a quasi-experimental instrumental variables (IV) analysis—in which EITC refund size was the instrument—to reduce confounding present in prior correlational studies and estimate the effect of income itself.

In OLS models, higher income was associated with reductions in psychological distress, increased drinking, 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.
The results from these two types of analyses may be different because the annual lump-sum EITC tax refund may be spent differently from income obtained more regularly through employment or other sources. Therefore, its effects on overall health and health behaviors may operate through different pathways. Alternatively, it may be that the relationship between income and these outcomes is confounded in OLS models by time-varying individual or place-based characteristics that influence income as well as mental health and health behaviors.

This study contributes to the literature on the health effects of income and provides evidence on the impact of one of the largest US poverty alleviation policies on health, building on prior studies by Hamad examining the health effects of the EITC. The findings enhance our theoretical understanding of the effects of income on mental health and health behaviors and help inform policymaking on a population-level intervention that may reduce socioeconomic disparities in health. These findings also complement work showing that state EITC supplements are cost-effective and are associated with improvements in health-related quality of life and longevity, important insights for advancing policy discussions on the EITC. Future research could examine other mental health outcomes or income supplementation programs implemented differently (e.g., the minimum wage or basic income not linked to employment).

Rita Hamad, MD, PhD

Dr. Rita Hamad is a social epidemiologist and family physician in the Philip R. Lee Institute for Health Policy Studies and the Department of Family & Community Medicine at UCSF. As the director of the Social Policies for Health Equity Research Program (SPHERE), her research focuses on the pathways linking poverty and education with health disparities across the life course. In particular, she studies the health effects of social and economic policies using interdisciplinary quasi-experimental methods. She also investigates the mechanisms through which adverse socioeconomic conditions get "under the skin" to cause disease.


How does income affect mental health and health behaviours? A quasi-experimental study of the earned income tax credit.
Shields-Zeeman L, Collin DF, Batra A, Hamad R.J Epidemiol Community Health. 2021 May 14:jech-2020-214841. doi: 10.1136/jech-2020-214841. Online ahead of print