Upjohn Institute Economist Gabrielle Pepin’s paper “What is the Value of the Child and Dependent Care Credit?” has been published in the American Economic Association’s 2025 AEA Papers and Proceedings, a recognition for outstanding papers presented at the Allied Social Science Associations’ 2025 annual meeting. Pepin has presented several papers at ASSA annual meetings on the Child and Dependent Care Credit, or CDCC, a tax credit that subsidizes care costs for working families and that was temporarily increased in 2021 by the American Rescue Plan Act. We asked Pepin about the research and its implications.
After the CDCC bumped up dramatically for a year, it went right back to being a relatively small credit. In retrospect, is it clear what that expansion accomplished? Some lasting effects on families, or maybe a proof of concept, or a roadmap on how to do this sort of credit in the future?
GABRIELLE PEPIN: Unfortunately, I don’t think we have a good sense of what would happen from a longer-term CDCC expansion. This is for a couple reasons. First, families may respond very differently to a one-year income boost than to a permanent increase in tax benefits. Second, and perhaps more importantly, the one-year expansion occurred during the pandemic when there were a lot of other things going on, including a Child Tax Credit expansion that received much more press.
What I do think we can learn from this, though, is that there was enough bipartisan support to make the CDCC more generous for families across the income distribution, including low-income families who previously didn’t benefit because the tax credit was nonrefundable [meaning families that didn't owe taxes couldn't claim it].
What insight might your research give policymakers looking to accomplish what they tried to accomplish with the CDCC expansion?
While the CDCC is of little value to most families in its current form, a simple expansion could increase its value substantially, reducing the financial strain that child care expenses place on working parents and low-income parents especially. That said, it’s worth noting that as long as CDCC benefits are a share of spending, high-income households, who tend to spend the most on child care, stand to benefit disproportionately from a benefit expansion.
This is obviously a different political environment than 2021. What is the relevance of what you learned to current policy discussions?
Because all parents in a household must work to be eligible for CDCC benefits, the tax credit directly promotes secondary earners’ labor force participation. As of late, there seems to be less support from policymakers for expenditure programs that require both spouses in a married couple to work. Nonetheless, current proposed policy changes, such as a small increase in the value of the Child Tax Credit, are unlikely to grant parents more freedom in the decision of whether to work or stay home in any meaningful way. So, under the existing reality that both spouses in many married households must work to support their families, subsidizing child care remains essential to ensuring that families with young children can thrive.
You’ve done a lot of other work on this program and you might be the single most knowledgeable person on it. What do you wish more people knew about the CDCC?
The CDCC isn’t generous enough to move the needle on care costs for a lot of families, but simple changes to it, like the ones made under ARPA, would make it much more effective in mitigating families’ out-of-pocket costs.