Summary: In 2021, the federal government of the United States expanded a set of income transfers that led to strong reductions in child poverty. This research note uses microdata from more than 50 countries and U.S. data spanning more than 50 years to place the 2021 child poverty rate in historical and international perspective. We demonstrate that whether using the Supplemental Poverty Measure (SPM), relative poverty measures, or an absolute poverty measure, the U.S. child poverty rate in 2021 was at its lowest level since at least 1967. The U.S. tax and transfer system reduced the 2021 SPM child poverty rate by more than 75% relative to the pre-tax/transfer child poverty rate; this reduction was three times the mean reduction effect between 1967 and 2019. These policy changes improved the country's standing from having a relative poverty rate twice that of Germany's in 2019 to the same as Germany's in 2021. Moreover, the U.S. progressed from reducing child poverty at less than half the rate of Norway in 2019 to a rate comparable to Norway in 2021. However, the U.S. success was temporary: after the expiration of the 2021 income provisions, the child poverty rate doubled and returned to being higher than in most other high-income countries.

Summary: The economic crisis triggered by COVID-19 put families with children in the United States under significant financial stress. The federal government’s largest response in 2021 was the American Rescue Plan Act, which temporarily expanded the Child Tax Credit (CTC) into a large, unconditional child allowance providing monthly income support to families with children. This study investigates consumption responses to the CTC expansion using anonymized mobile-location data and debit/credit card data that track visits and spending at 1.3 million establishments across counties that cover 99.6% of the U.S. population. For identification, we exploit variation in the size of households’ income gains due to the CTC across counties in a difference-in-differences framework spanning January 2021 through May 2022. We find that counties benefiting most from the CTC expansion experienced larger increases in visits to child care centers; increased spending amounts at personal care establishments, restaurants, and grocery and general stores; and no significant increase in consumption at alcohol, tobacco, or gambling establishments. We find some evidence that CTC payment frequency matters for spending decisions: when distributed at monthly frequency, the CTC payments contributed to greater consumption at grocery and general stores. When distributed as a lumpsum, the benefit contributed to greater consumption at children’s and family clothing stores. Both payment types contributed to greater visits to child care centers. These findings suggest that the CTC expansion increased household consumption and particularly spending on children.

Summary: Experiencing poverty in childhood increases one's likelihood of poverty in adulthood. However, past research offers competing accounts on why the strength of the intergenerational persistence of poverty varies across contexts and the mechanisms through which it is channeled. This study uses administrative- and survey-based panel datasets to investigate differences in the intergenerational persistence of poverty in the United States (U.S.), Australia, Denmark, Germany, and the United Kingdom (UK). We introduce an accounting framework to fully decompose the association of childhood poverty and adult poverty into four components: family background, mediating benchmarks, tax/transfer insurance effects, and a residual poverty penalty. We find that intergenerational poverty in the U.S. is around three times stronger than in Denmark, Germany, or the UK, and twice as strong as in Australia. While intergenerational poverty in Denmark is primarily channeled through family background effects, it persists in the UK and Germany through mediation benchmarks such as adult education and employment. The U.S. disadvantage is not primarily channeled through family background effects, mediation effects (such as unequal access or returns to education), neighborhood effects, or racial/ethnic discrimination. Instead, the U.S. has comparatively weak tax/transfer insurance effects and a more severe residual poverty penalty than in other countries. Should the U.S. adopt the tax/transfer insurance effects of peer countries, its intergenerational persistence of poverty could decline by more than one-fourth from its observed value. The study's data, conceptual, methodological, and substantive advancements offer a foundation for renewed research on the intergenerational persistence of poverty in high-income countries. 

Summary: Mental health conditions have worsened in many countries in recent decades. The provision of unconditional cash transfers may be one effective policy strategy for improving mental health, but causal evidence on their efficacy is rare in high-income countries. This study investigates the mental health consequences of the 2021 Child Tax Credit (CTC) expansion, which temporarily provided unconditional and monthly cash support to most families with children in the United States (US). Using data from the Behavioral Risk Factor Surveillance System, the largest health-related survey in the US, we exploit differences in CTC benefit levels for households with younger versus older children. More generous CTC transfers are associated with a decrease in the number of reported bad mental health days. The effect materializes after the third monthly payment and disappears when the benefits are withdrawn. The CTC's improvement of mental health is larger for more credit-constrained individuals, including low-income households, women, and younger respondents.

Summary: We study the short- and medium-run employment responses to the withdrawals of two programs that expanded the coverage and generosity of unemployment benefits in the U.S. from March to August 2021. That 18 states withdrew unemployment benefits earlier than other states offers a unique policy setting to investigate transitions out of unemployment by race/ethnicity, implications for the quality of job matches, and the persistence of employment effects. Difference-in-differences estimates using panel data from the U.S. Current Population Survey demonstrate that states’ withdrawals of unemployment benefits increased transitions from unemployment to employment, but with large racial heterogeneity: Black and Asian individuals experienced increases in transitions from unemployment into inactivity as a result of the policy change, while White individuals exiting unemployment generally transitioned into employment. Regarding job quality, the benefit withdrawals increased the take-up of lower-pay routine and manual occupations. One year after the policy change, the positive employment effect of the early benefit withdrawal had disappeared, while the negative effects on job quality outcomes persisted.

Summary: Past research has identified single parenthood as a key risk factor for poverty and adverse child outcomes. This study proposes an expanded conceptualization of single parenthood that acknowledges their within-group heterogeneity. Specifically, we identify four different pathways into single parenthood (divorce, separation, widowhood, and never getting married). Using panel data for the U.S., we investigate trends in these single parent pathways over time, the diversity of demographic characteristics across pathways into single parenthood, and the implications of each pathway for short- and long-run family outcomes. We find, first, that in 2019, most single parents were single because they never got married, compared to the 1970s when the most common pathway into single parenthood was divorce. Second, there exist large heterogeneities by age, race/ethnicity, and education across the pathways. Third, never getting married and separation are associated with the most negative consequences for child poverty, as well as children’s later-life education and employment outcomes. In contrast, no statistical differences emerge in children’s later-life employment outcomes for those raised by divorced or widowed single parents compared to children raised in two-parent families. Our findings demonstrate that studies treating single parenthood as a homogenous demographic overlook large and meaningful within-group differences.

Summary: We investigate trends in income inequality in the European Union (EU) from 2007 to 2019. Using EU-SILC data, we find that EU-wide inequality declined between 9% and 20%, depending on the inequality measure applied, despite rising within-country income inequality during the same time period. Applying a series of decomposition techniques, we find that between-country convergence in pre-tax/transfer incomes fully explains the declining EU-wide inequality. Changes in tax and transfer systems, in contrast, contributed to marginally higher inequality in 2019 compared to 2007. Nonetheless, the 10th percentile of the EU-wide income distribution grew six times the rate of the 90th percentile, a product of widespread earnings gains among residents of lower-income EU Member States. Re-centered influence functions and Kitigawa-Oaxaca-Blinder analyses reveal that those earnings gains are not due to specific compositional or employment changes but rather are due to rising earnings returns to employment in lower-income Member States. Despite the contribution of between-country income convergence in reducing EU-wide inequality between 2007 and 2019, however, within-country income disparities continue to explain the larger share of EU-wide inequality levels in 2019. Thus, reducing within-country economic disparities is increasingly important for achieving further reductions in EU-wide inequality moving forward.

Summary: The COVID-19 pandemic led to declines in market income and increases in unemployment across much of Europe and the United States, and had the potential to increase poverty rates. However, tax and transfer systems invested heavily in social protection to buffer against potential income losses. Using EU-SILC data and the U.S. Current Population Survey, this study compares the poverty-reduction performance of the European Union (EU) and the United States (US) from before the pandemic to the first year of the pandemic. We find that unemployment and market poverty rates increased in many countries, but welfare states largely compensated for those losses. Post-tax/transfer poverty rates for the average EU country did not change from 2019 to 2020, and poverty decreased substantially in the US. Among all countries, changes in pre-tax/transfer poverty rates were not positively correlated with changes in post-tax/transfer poverty. The US experienced the largest pre-tax/transfer increase in poverty rates, yet also the largest post-tax/transfers declines in poverty rates from 2019 to 2020. Overall, welfare states in the EU and the US generally increased their performance enough to prevent what could have been large increases in post-tax/transfer poverty during the first year of the pandemic, with the US increasing its poverty-reduction performance more than EU countries.