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In 1990, a pregnant low-income mother with one child would have received an EITC tax credit of $1,250. A mother with two children would have received the same amount, because back then EITC didn’t take into account the number of children you had.
That changed in 1993, and the change was fully phased in by 1996. So in 1996, the first mother would have received $2,250, while the second mother would have received $3,750.
This provides us with the ability to perform a lovely little natural experiment. In the 1990 group, both pregnant mothers get the same amount of money, so you can use this as a baseline. In the 1996 group, pregnant mothers with two children get more money. Do their newborn babies do any better relative to this baseline? Last year a team of researchers did the legwork to find out, and as it turns out, the answer is yes:
We find that increased EITC income reduces the incidence of low birth weight and increases mean birth weight. For single low education (<= 12 years) mothers, a policy-induced treatment on the treated increase of $1000 in EITC income is associated with a 6.7 to 10.8 percent reduction in the low birth weight rate.
So an extra $1,000 produces about a 10 percent reduction in low birth weights. That’s a pretty persuasive argument that having more money really does produce better health. As Bill Gardner puts it, “The bottom line is that redistributing income to poor families improves the health of their infants. It is, in effect, a form of prenatal care.”
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