Associate Professor of Strategy; Herman Smith Research Professor in Hospital and Health Services Management; Director of Healthcare at Kellogg
Economists have long known that the more money you have, the healthier you are. What has been difficult to sort out is whether money leads to better health or if the two simply go hand in hand. After all, people who are wealthier might simply be more patient and persistent or could simply have had better childhoods.
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Rare is the opportunity to study a massive and persistent injection of wealth into needy families, but the 1993 expansion of the Earned Income Tax Credit is one example. The EITC, a lump-sum disbursement given at tax time, is by far the nation’s largest anti-poverty program, distributing $49 billion to 24 million people in 2008.
In 1993, families with two or more children were for the first time given substantially more money than families with one child, providing Craig Garthwaite, an assistant professor of management and strategy at the Kellogg School of Management, and William Evans, a professor at Notre Dame, with an opportunity to examine the effects on poor families of a substantial and persistent windfall.
Garthwaite and Evans report that mothers with more than one child, and therefore up to $1,327 in additional funds from the EITC, claimed to have significantly better health outcomes. Examination of a suite of biomarkers in these mothers also revealed that vital signs associated with stress and predictive of heart disease were lower after the increase in the EITC. “We’re among the first to show clear health benefits of a cash transfer program,” Garthwaite says.
For the poorest families, the expansion of the EITC represented an increase in their income of up to 15 percent. In total, the program is bigger than the combination of Temporary Assistance for Needy Families and the Supplemental Nutritional Assistance Program, or what are colloquially known as welfare and food stamps. The EITC’s impact on families can be considerable. As one recipient put it in an interview with The New York Times, “You get this feeling of, ‘Hey, I’m like them now.’ ” Presumably, by “them,” he means the middle class.
“Self-reported health measures are surprisingly good indicators of future health outcomes.” — Craig Garthwaite
Previous literature showed that a substantial portion of the EITC is spent on things that are likely to affect the baseline levels of stress in recipients by changing many circumstances of their life at once, like a new car or a move to a better neighborhood. This could explain why self-reported health went up among women in these families and the number of bad mental health days went down.
Self-reported health measures are surprisingly good indicators of future health outcomes, Garthwaite says. But they are also coarse, and it is not clear what is being measured when someone says they have “good” or “fair” health. Traditionally, research in this area has relied on changes in mortality for objective data. But that presents a problem, as mortality among people aged 21 to 40 is not particularly high. To get a clearer view, Garthwaite instead looked at data on biomarkers for health gathered by states and compiled by the Centers for Disease Control and Prevention.
Biomarkers are gathered through urine and blood samples. Markers associated with stress, including C-reactive protein and albumin—which are associated with inflammation, which is itself linked to stress—went down when families received larger EITC payouts. Independent of other factors, these markers predict rates of future heart disease, cardiac arrest, and stroke. “We’re trying to look further up the causal pathway, to see changes in things that might eventually lead to adverse health outcomes,” Garthwaite says.
The results of Garthwaite and Evans’s study mean that a perceived change in socioeconomic status is having a direct effect on the physiology of millions of Americans. They suggest that by helping recipients upgrade their lives, EITC payments can lower stress levels. The effects of stress on health are well documented in the medical literature, and the addition of the biomarker data further reinforces this hypothesis, Garthwaite says.
This finding could have a concrete impact on calculations that weigh the costs and benefits of the EITC and other poverty-reduction programs. “If we think about a democratic ideal, elected officials are implicitly weighing the costs and benefits of the program,” Garthwaite says. “We want to provide as complete information as we can, and we’ve shown that the health effects of this program should be included on the benefits side.”
The EITC is unique among anti-poverty programs in that it tends to have bipartisan support, since it goes to people who work and who have kids. By showing that its expansion has a direct effect on health outcomes, Garthwaite and Evans’s research suggests that there is not merely a correlation between health and wealth, but that the provision of additional funds through the EITC is actually a unique driver of better health.
Related reading on Kellogg Insight
Christopher Mims is a journalist based in Baltimore, Maryland.
Evans, William and Craig Garthwaite. 2012. “Giving Mom a Break: The Impact of Higher EITC Payments on Maternal Health.” Working paper, Kellogg School of Management.
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