Family Labor Supply and the Timing of Cash Transfers: Evidence from the Earned Income Tax Credit

Abstract

This paper exploits the unique disbursement timing and benefit rules of the Earned Income Tax Credit (EITC) to provide new evidence on how families adjust their labor supply in response to receiving anticipated cash transfers. I find that income seasonality caused by EITC receipt leads to changes in the intra-year labor supply patterns of married women. On average, receiving a $1,000 payment significantly reduces the proportion of married women who work, by 1.3 percentage points, in the month when the EITC is received. Additionally, this labor supply response is mainly driven by those who are secondary earners or liquidity-constrained.