Working Paper: NBER ID: w19283
Authors: Sara Lalumia; James M. Sallee; Nicholas Turner
Abstract: This paper uses data from the universe of tax returns filed between 2001 and 2010 to test whether parents shift the timing of childbirth around the New Year to gain tax benefits. Filers have an incentive to shift births from early January into late December, through induction or cesarean delivery, because child-related tax benefits are not prorated. We find evidence of a positive, but very small, effect of tax incentives on birth timing. An additional $1000 of tax benefits increases the probability of a late-December birth by only about 1 percentage point. We argue that the response to tax incentives is small in part because of confusion about eligibility and delays in the issuance of Social Security Numbers for newborns, as well as a lack of control over medical procedures on the part of filers with the highest tax values. We also document a precise shifting of reported self-employment income in response to variation in incentives from the Earned Income Tax Credit due to childbirth. We estimate that this reporting response reduces federal revenue by hundreds of millions of dollars per year.
Keywords: taxes; timing of birth; childbirth; tax benefits; earned income tax credit
JEL Codes: H24; H26; J13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| tax incentives (H20) | December birth probability (C46) |
| tax value associated with having a child (J17) | December birth probability (C46) |
| maternal age, marital status, and birth order (J12) | December birth probability (C46) |
| confusion about eligibility for tax benefits (H20) | response to tax incentives (H32) |
| delays in obtaining social security numbers (H55) | response to tax incentives (H32) |
| birth-related tax incentives (H20) | federal revenue (H27) |