State Earned Income Tax Credits and Self-Employment Among Single Mothers

Abstract

This paper examines whether state Earned Income Tax Credits (EITCs) affect self-employment among single mothers. Using a difference-in-differences design exploiting staggered state EITC adoption from 2014–2023 and Current Population Survey microdata, I find that state EITCs reduce self-employment among single mothers by approximately 1.3 percentage points—a 54 percent decline relative to the baseline rate. The effect is concentrated in incorporated self-employment and is significantly larger than the null effect observed for childless women (the placebo group). These findings suggest that state EITCs may pull single mothers away from self-employment and into wage employment, where EITC benefits are easier to claim and verify. However, significant pre-treatment coefficients raise concerns about parallel trends violations, and the results should be interpreted with caution. The negative self-employment effect implies that while EITCs may increase overall employment, they may inadvertently discourage entrepreneurship among their target population.