Three Essays on U.S. Tax and Transfer Programs
Eng, Amanda Ryan
This dissertation is comprised of three essays that explore the impacts of tax and transfer programs for low-income households. In the first chapter, coauthored with Kevin Rinz, we study how income affects the take up of means-tested programs. Pro-work policies usually decrease household participation in traditional safety-net programs like the Supplemental Nutrition Assistance Program (SNAP) and the Temporary Assistance for Needy Families (TANF) program. This negative relationship could be driven by newly working households becoming more self-sufficient or by decreased eligibility and higher costs to participate in the programs. Understanding which of these factors drives the negative relationship between income and program participation is important for understanding the mechanisms driving take-up decisions and for designing effective policies. However, the designs of SNAP and TANF make it difficult to distinguish these factors. In this paper, we estimate how demand for SNAP and TANF changes with income, holding eligibility and take-up costs constant. We use a discontinuity in child tax benefits, which do not affect program eligibility, to isolate the effect of income on program participation. We additionally show evidence that take-up costs are the same for households on either side of the discontinuity. We find that although eligibility for tax credits decreases households' tax liability by \$2,219 on average, the additional income results in no measurable difference in program participation. These findings suggest that the negative correlation between income and program take-up is driven by households losing eligibility or facing greater participation costs and that there could be significant benefits to expanding eligibility for these programs to more working households. In the second chapter, coauthored with Jordan Matsudaira, we study how Pell Grants affect students' success in higher education. The Pell Grant program is the largest federal program aimed at lowering the cost of higher education for low-income students. Most prior work has found that Pell grants have little or no effect on students' success, but recently Denning et al. (2019) estimate that Pell grants significantly increased completion rates and post-college earnings for four-year college students in Texas. These conflicting findings may be driven by the fact that previous studies are limited to specific states or school systems. In our paper, we estimate the average effect of Pell on student outcomes across a much broader swath of higher education than has been examined in the literature to date. We use administrative data covering the universe of federal aid recipients. Our research design makes use of discontinuities and kinks in the Pell grant schedule to estimate how additional grant aid affects students' outcomes. We find that the effect of Pell on completion rates and post-college earnings are much weaker than the estimates of Denning et al. (2019). We argue that this difference may be partly the result of interactions between Pell grants and a particularly generous state aid program in Texas. Our findings underscore the importance of understanding how aid programs like Pell grants interact with the larger financial aid system. In the final chapter, I investigate the macroeconomic effects of the Earned Income Tax Credit (EITC). The EITC has been shown to significantly increase labor force participation and much of the credit is spent instead of saved. These two effects could result in medium to long run growth of the economy. Additionally, because the EITC is distributed when households file their taxes around February and March, it particularly increases consumption around these months and could shift the timing of economic activity within a year. I use simulated instruments and a variety of estimation methods to explore how the EITC affects state-level economic indicators. I find that the EITC has large effects on both employment and state GDP in the medium run, with only weak evidence that it impacts the timing of economic activity during the year. From these analyses, I conclude that the main way the EITC affects the broader economy is by promoting growth.
Lovenheim, Michael F.
Pei, Zhuan; Matsudaira, Jordan; Miller, Douglas L.
Ph. D., Economics
Doctor of Philosophy
dissertation or thesis