Jacob Bastian (Rutgers) and Melody Harvey (Wisconsin) have a new NBER working paper, “When Policy Shapes Perception: The 2021 Child Tax Credit and Consumer Sentiment.” Here is the abstract:

Consumer sentiment influences household behavior in important ways, yet we lack causal evidence on whether government policies themselves shape these perceptions. We help fill this gap by studying the expiration of the expanded 2021 Child Tax Credit (CTC), which abruptly reduced household income for millions of families. Using monthly microdata from the University of Michigan’s Consumer Sentiment Survey and plausibly exogenous variation in benefit losses across households, we implement continuous difference-in-differences and instrumental variables strategies. We find that each $1,000 in lost CTC benefits reduces sentiment by 1.7 points (or about 2.4%), with largest effects among lower-income families with multiple children. These effects persist two years after expiration and remain robust to controls for inflation, interest rates, and macroeconomic conditions. The results suggest that fiscal policy impacts perceived economic well-being beyond contemporaneous income effects, with potential implications for household economic activity, political attitudes, and voting behavior.