Income Elasticity of Demand for Healthy and Unhealthy Foods: Evidence from Lump-Sum Earned Income Tax Credit Payments

The Earned Income Tax Credit is unique among social programs in that benefits are not paid out evenly across the calendar year but are received in a lump-sum cash payment. We exploit this feature of the EITC to investigate how receiving this influx of cash affects food expenditure patterns of eligible households. We find consistent evidence that EITC-eligible households increase spending in our healthy-food category, which includes fresh fruits and vegetables, fish and poultry, and milk, in months when more EITC benefits are paid. By contrast, we find no statistically significant increase in spending on less-healthy foods or soft drinks.