Every December, we like to highlight some of the recent research that has been shaping public policy over the past year. With the presidential election this year, there was extra attention paid to policy issues that will have major ramifications for years to come. Here are three papers we found extremely valuable this year.
Quasi-Experimental Evidence on the Employment Effects of the 2021 Fully Refundable Monthly Child Tax Credit, by Pac & Berger:
Pac and Berger's study investigates the impact of the 2021 expanded Child Tax Credit on caregiver employment. This expansion aimed to provide substantial financial support to families, and the researchers specifically focused on whether this led to changes in employment rates among caregivers.
A common criticism of child tax credits is that they might lead to a decline in employment for caregivers, essentially using the added income from the credit to substitute away from wage income. If this were true, it would weaken the effectiveness of child tax credits from an anti-poverty perspective.
Instead, this paper finds that there is no identifiable impact on employment for recipients of the child tax credit. In fact, there was a slight increase in employment for caregivers with two or more children relative to caregivers with one child.
The implications of this study are significant for policymakers considering the implementation of non-work-conditioned child allowances in the US. It demonstrates that financial support to families can be provided without negatively impacting workforce participation.
Disability and Distress: The Effect of Disability Programs on Financial Outcomes, by Deshpande, Gross, and Su
Deshpande, Gross, and Su won the American Economic Journal: Applied Economics’s award for best paper by exploring how disability programs like Supplemental Security Income affect financial distress among recipients. Using linked administrative data, they examined records on bankruptcy, foreclosure, eviction, home purchases, and home sales to understand the financial impact of disability allowances.
This paper finds that these cash transfers significantly reduce the likelihood of adverse financial events such as bankruptcy, foreclosure, and home sales. By offering essential support, disability allowances help individuals avoid the worst case scenarios that lead to even worse long term problems.
Additionally, the data indicate that financial difficulties peak around the time individuals apply for disability benefits. This pattern suggests a potential causal link between disability status and financial distress, highlighting the importance of timely financial support. Ensuring that individuals receive disability allowances when needed can prevent financial crises and promote economic stability.
The research underscores the importance of disability programs in providing financial stability to recipients. Timing is everything, and there seem to be significant benefits to getting these resources to people as quickly as possible.
Discounting in Natural Resource Damage Assessment, by Horsch, Leggett, and Curry
This paper by Horsch, Leggett, and Curry addresses the complexities of selecting a discount rate in natural resource damage assessment cases. They won the Society for Benefit Cost Analysis’ Best Article Award for studying how discount rates are crucial in determining the present value of future environmental damages and restoration gains, and reviewing the conceptual and empirical basis for these selections.
The paper examines the existing 3% real discount rate commonly used in natural resource damage assessments, and presents arguments for potentially lowering it in response to declining interest rates. Two alternative methods for determining the discount rate are discussed: the social rate of time preference and the coerced loan theory.
The authors conclude that there are enough questions about other ways of calculating the discount rate, that it makes practical sense to simply use the 3% discount rate that has historically been used to settle these cases. The 3% number is roughly the median discount rate, and in the absence of a more conclusive “best” discount rate, 3% makes a lot of sense.
Discussions about what the appropriate discount rate is have dominated the discourse among economists since the release of the revised Office of Management and Budget Circular A-4 late last year. Future research on this topic is likely to be one of the most important developments in the field of cost-benefit analysis in the coming years.