United States: Expanded Child Tax Credit improved Parents' Mental Health

Unconditional cash transfers are a key tool to combat America's mental health crisis

Photo by Sandy Millar on Unsplash

A new study (The effects of an unconditional cash transfer on parents' mental health in the United States by Clemente Pignatti and Zachary Parolin) published in the journal Health Economics found that the temporary expansion of the child tax credit (CTC) in 2021 as part of the American Rescue Plan Act significantly improved parents' mental health, especially among more financially vulnerable groups.

Why it matters: Mental health disorders are a growing concern, affecting 1 in 8 people globally and leading to 12 billion lost work days annually due to anxiety and depression. In the U.S., over 20% of adults experienced mental illness in 2021. This study suggests that providing unconditional cash transfers to families, rather than transfers conditional on work, can be a highly effective policy tool to address the problem (in addition to the other benefits of helping families).

The details:

• The 2021 CTC expansion made the credit fully refundable regardless of earnings, increased maximum annual benefits to $3600 per child under age six and $3000 per child aged 6-17, and distributed half the credit via monthly payments from July to December 2021, reaching over 90% of families.

• Using data from the Behavioral Risk Factor Surveillance System, the nation's largest health survey, and comparing parents with younger vs. older children who received about $600 more in annual benefits, the study found that the CTC expansion reduced the number of poor mental health days parents reported

• The positive effects were driven by intensive-margin reductions in poor mental health days among parents already experiencing at least one poor mental health day per month, including those with more severe mental health issues reporting 20 or more poor days per month.

• Larger mental health improvements were found for women, adults under age 40, low-income households earning under $35,000, those with less than a college degree, single parents, and Hispanic individuals - groups with higher baseline rates of mental health issues and financial strain.  

• The mental health improvements appeared a few months after payments began, peaked, and quickly disappeared when the monthly payments expired after December 2021.

Between the lines: The CTC's mental health benefits likely emerged by reducing financial stress and material hardship for families. The authors found no effects on employment, health insurance coverage, or healthcare utilization. Enabling families to afford more food, housing, and other necessities seems key to mental health gains.

What they're saying: The authors note that the 2021 CTC expansion's temporary and politically uncertain nature likely led to smaller mental health improvements than would be expected from a permanent policy. If anything, the observed effects are at the lower bound of those that would emerge if the policy were made permanent.

The big picture: The results align with a growing body of research finding that poverty and financial stress are key risk factors for mental illness and that cash transfers and other anti-poverty programs can improve mental health. The study provides some of the first causal evidence that an unconditional cash transfer can improve mental well-being in a high-income country context.

Bottomline: As policymakers seek solutions to the nation's worsening mental health crisis, this study suggests that providing permanent, unconditional cash transfers to financially strained families could be a highly effective tool to improve parents' mental health. More research is still needed on such policies' long-term impacts and optimal design.