↳ Cash Transfers

September 25th, 2018

↳ Cash Transfers

Cash and Income Studies: A Literature Review of Theory and Evidence

What happens when you give people cash? How do they use the money, and how does it change their lives? Every cash study on this list is different: the studies vary in intervention type, research design, location, size, disbursement amount, and effects measured. The interventions listed here include basic income and proxies--earned income tax credits, negative income tax credits, conditional cash transfers, and unconditional cash transfers. The variety present here prevents us from being able to make broad claims about the effects of universal basic income. But because of its variety, this review provides a sense of the scope of research in the field, capturing what kinds of research designs have been used, and what effects have been estimated, measured, and reported. The review also allows us to draw some revealing distinctions across experimental designs.

If you’re interested in creating a UBI policy, there are roughly three levels of effects (after ODI) that you can examine.

⤷ Full Article

August 18th, 2018

House Fronts



In Iran, cash transfers don't reduce labor supply

A new study examines the effects of Iran's changeover from energy subsidies to cash transfers. From the abstract, by DJAVAD SALEHI-ISFAHANI and MOHAMMED H. MOSTAFAVI-DEHZOOEI of the ECONOMIC RESEARCH FORUM:

“This paper examines the impact of a national cash transfer program on labor supply in Iran. [...] We find no evidence that cash transfers reduced labor supply, in terms of hours worked or labor force participation. To the contrary, we find positive effects on the labor supply of women and self-employed men.”

Most recent version here. The ungated working paper is available here.

  • Another paper co-authored by Salehi-Isfahani further details the energy subsidies program and the role that cash transfers played in the reforms, with a specific focus on differences in take-up. Link.
  • We’ve previously shared work from Damon Jones and Ioana Marinescu on the Alaska Permanent Fund dividend, which found that “a universal and permanent cash transfer does not significantly decrease aggregate employment.” Link.
  • In other Basic Income news, petitions and protests are being organized in response to the cancellation of the Ontario pilot.
⤷ Full Article

May 19th, 2018

Modelled Eye



Arguments for Value-Added Tax in the US, and using VAT to fund basic income


The Wall Street Journal lays out the basics: “Unlike a traditional sales tax, a VAT is a levy on consumption that taxes the value added to a product or service by businesses at each point in the chain of production.”

VATs are ubiquitous—except in the United States. According to a 2013 Hamilton Project report, “In recent years, the VAT has raised about 20 percent of the world’s tax revenue (Keen and Lockwood 2007). This experience suggests that the VAT can raise substantial revenue, is administrable, and is minimally harmful to economic growth.”  The TPC notes that “every economically advanced nation except the United States” has a VAT. Countries adopted VATs over time: the EU first unified all its VATs in the 1970s, China adopted a VAT in 1984, Canada in 1991, and so on. Now the US is the only country in the OECD without one.

Why is there no VAT in the US? 

"Back in 1988, Harvard economist Larry Summers [...] explained that the reason the U.S. doesn't have a VAT is because liberals think it's regressive and conservatives think it's a money machine. We'll get a VAT, he said, when they reverse their positions." (Forbes.)

A VAT could certainly be a revenue-raising powerhouse. According to the CBO, a 5% VAT could raise 2.7 trillion dollars in 2017-2026 with a broad base, or 1.8 trillion with a narrow base—the most massive of all the options for revenue in their 2016 report.

And as for the regressive concerns, VAT proposals usually suggest adjusting other taxes or credits commensurately. A 2010 Tax Policy report considers a VAT in the context of lowering payroll or corporate taxes, and the Hamilton Project suggests adding tax credits or straightforward cash to low-income households.

VATs are appealing beyond their ability to raise a lot of money. They’re also easier to administer and document than other tax forms. A 2014 study by Dina Pomeranz examines the way the VAT is documented in Chile, and finds that "forms of taxation such as the VAT, which leave a stronger paper trail and thereby generate more information for the tax authority, provide an advantage for tax collection over other forms of taxation, such as a retail sales tax." Beyond that, Michael Graetz argues in the Wall Street Journal, "shifting taxes from production to consumption would stimulate jobs and investments and induce companies to base headquarters here rather than abroad." The Tax Foundation has advocated for a VAT to replace the Corporate Income Tax for similar reasons.

⤷ Full Article

May 12th, 2018

Lay of the Land



A new paper on the labor effects of cash transfers

SARAH BAIRD, DAVID MCKENZIE, and BERK OZLER of the WORLD BANK review a variety of cash transfer studies, both governmental and non-governmental, in low- and middle-income countries. Cash transfers aren’t shown to have the negative effects on work that some fear:

"The basic economic model of labor supply has a very clear prediction of what should be expected when an adult receives an unexpected cash windfall: they should work less and earn less. This intuition underlies concerns that many types of cash transfers, ranging from government benefits to migrant remittances, will undermine work ethics and make recipients lazy.

Overall, cash transfers that are made without an explicit employment focus (such as conditional and unconditional cash transfers and remittances) tend to result in little to no change in adult labor. The main exceptions are transfers to the elderly and some refugees, who reduce work. In contrast, transfers made for job search assistance or business start-up tend to increase adult labor supply and earnings, with the likely main channels being the alleviation of liquidity and risk constraints."

Link to the working paper. Table 2—which covers the channels through which cash impacts labor, is especially worth a read—as many studies on cash transfers don’t go into this level of detail.

  • A study on a large-scale unconditional cash transfer in Iran: "With the exception of youth, who have weak ties to the labor market, we find no evidence that cash transfers reduced labor supply, while service sector workers appear to have increased their hours of work, perhaps because some used transfers to expand their business." Link.
  • Continuing the analysis of Hauschofer and Schapiro’s controversial results from a cash study transfer in Kenya, Josh Rosenberg at GiveDirectly has, at the end of his overview, some thoughtful questions for continuing research: "Is our cost-effectiveness model using a reasonable framework for estimating recipients’ standard of living over time?… GiveDirectly provides large, one-time transfers whereas many government cash transfers provide smaller ongoing support to poor families. How should we apply new literature on other kinds of cash programs to our estimates of the effects of GiveDirectly?" Link.
⤷ Full Article