The Long-Term Effects of Cash Assistance

[MachineGhost]

The Income Maintenance Experiments of the 1960s and 1970s were the first large-scale social science RCTs, offering a unique opportunity to identify the long-term causal effects of cash assistance. We use data from the IMEs in Seattle and Denver, along with data from the SSA and the WA DOH, to follow up, for the first time, on long-term outcomes for participants and their children from these experiments. Even after participants were no longer being directly treated, this cash assistance caused earned income for treated adults to be $1,800 lower per year, and increased the chance these adults would apply for disability benefits by 6.3 percentage points. On the other hand, there was no effect on adults’ propensity to actually receive these benefits, or their mortality rate.

We also find little evidence that any effect was passed on to their children. We can rule out effects 35in either direction on child applications for SSDI or SSI of more than 3 percentage points, and effects on child annual earned income of more than $1,500. While narrower confidence intervals would be desirable, these findings—in the context of other literature—can improve our understanding of how cash assistance affects children. Although the standard errors may mask smaller causal effects, these results provide evidence that cash assistance may not have the large effects found in other contexts.

Although we discuss potential reasons why our results may differ from results in other studies, more research is needed to understand the causal mechanisms involved in order to better apply these lessons to policy. For example, if the high tax rate were crucial for the effects we observe, then policymakers may favor an unconditional guarantee, or an EITC-style negative tax rate. Additionally, if the control group’s access to AFDC and other benefits was the reason we didn’t observe significant effects for children, then we should not generalize these results as indicating the effect of any cash assistance, but additional cash assistance. Understanding the causal mechanisms will improve external validity, but it could also allow for more welfare analysis of the effects. The long-term effects on adults were likely unintended consequences from the perspective of policymakers. But given the data we have, we cannot say if, or by how much, they represent a welfare gain or loss for the adults themselves, or their families.

Lack of evidence also makes it difficult to compare our significant results for adults to the long-term effects of other government programs and policies, such as food stamps or public housing. More research on the long-term effects of other programs can help put the present results in their proper context, and better inform policymakers of the long-term trade-offs they face.

Poverty and other aspects of low socioeconomic status often last a lifetime, and are passed down through the generations. Guaranteeing a minimum income above the poverty line ensures that a family is not in poverty while the guarantee is in place, but it alone may not be a panacea to break the cycle of poverty. Taken together, our results suggest that policymakers should consider the long-term impacts of cash assistance. In SIME/DIME, assistance does not cause large observable benefits for children, and may lead to unintended consequences for adults. On the other hand, we also find no evidence that this government assistance creates a welfare culture that is passed down to future generations. In a time of rising inequality, more research is needed to understand how cash assistance affects families that are struggling to get by.

http://web.stanford.edu/~djprice/papers/djprice_jmp.pdf