The Expansion of California and Colorado State Earned Income Tax Credit and its Impact on Labor Market Outcomes for Undocumented Immigrants

Abstract

Undocumented immigrants in the U.S. pay billions of dollars in federal and state taxes every year. However, they continue to be ineligible for many government welfare programs, such as the federal Earned Income Tax Credit (EITC), due to their lack of a Social Security Number (SSN). The federal EITC is one of the largest anti-poverty programs in the U.S. and has been proven to financially assist millions of low- and middle-income households. While the literature on the federal and state EITC is extensive, there is little to no research examining how access to the EITC—or lack thereof—impacts undocumented immigrants. In 2020 Q3, Colorado and California extended their state EITC eligibility to ITIN holders, a group primarily composed of undocumented immigrants. Using 2017 - 2022 CPS data, this paper exploits the expansion of California and Colorado’s state EITC to examine its effects on the labor market outcomes of likely undocumented immigrants. I use a difference-in-differences and triple-differences model to conduct an individual- and county-level analysis, and estimate the expansion’s impact on the labor force participation, employment status, family income, and weekly hours worked of likely undocumented immigrants. Although I find some statistically significant effects across both analyses, I cannot firmly conclude that a relationship exists between the 2020 state EITC expansion and the labor market outcomes of undocumented immigrants, given the limitations present in this study.