The incentive effects of the Earned Income Tax Credit and the Medicaid Program on the behavior of low-income individuals

The purpose of this research is to examine the effectiveness of two government programs for low-income individuals: the Earned Income Tax Credit (EITC) and the Medicaid program. First, the success of the EITC is evaluated in terms of its role in reducing participation in the Aid to Families with Dependent Children (AFDC) program. Using data from the 1986–1990 Current Population Surveys (CPS) the difference-in-difference-in-differences estimation strategy exploits variation in the EITC over time as well as variation in the AFDC program across states and across families of different sizes. The analysis controls for expansions in Medicaid eligibility over this time period. It is found that as the EITC increases, its interaction with the AFDC program causes an increase in the probability of participating in AFDC for single women aged 16 to 44.;Second, this study examines the effectiveness of the Medicaid program in terms of its ability to reduce the number of low-income individuals who do not have health insurance policies. Historically, Medicaid eligibility has been linked to AFDC eligibility, which largely restricted those eligible for Medicaid to low-income single-parent families with children. In the late 1980s and the early 1990s states were mandated to expand the Medicaid program to children in low-income families and to pregnant women. Using data from the 1990 Survey of Income and Program Participation (SIPP) it is estimated that Medicaid program expansions decrease the probability that women are uninsured by between 0.013 and 0.026. The Medicaid expansions decrease the probability that children are uninsured by about 0.03.