One of the fundamental tradeoffs in public policy analysis is that between equality and efficiency. Theoretically, promoting equality (or “equity” for that matter) can come at the cost of economic efficiency. This is because safety net programs must be financed through taxing income or consumption and can create disincentives to efficient allocation of resources.
Recently, a growing body of research has been questioning the nature of this tradeoff in public policy. For instance, research on patent filings across the country show they are less likely to be registered in zip codes with less economic opportunity. This means that we tolerate poverty at the cost of new technological breakthroughs for everyone.
Similarly, research on cash transfers increasingly shows how putting cash in the pockets of low-income families can be key to future earnings, health, and crime outcomes for poor children. Last year’s winner of the journal article of the year in the Journal of Benefit-Cost Analysis was a study of the federal child tax credit suggesting this tax credit returns benefits in excess of $9 for every $1 of costs.
New research out this year provides more credence to this “domino effect” of antipoverty programs. A study published in the Journal of Human Resources in March used data from the Panel Study of Income Dynamics to estimate the impact of the earned income tax credit on future propensity to be in poverty.
The researchers found that people whose families received the earned income tax credit in childhood had a 5% lower chance of being in poverty or near poverty than those who did not receive the tax credit at that age.
Another finding from this study was that some of these people who received the earned income tax credit in childhood also drew less on public assistance in adulthood. This suggests that in the long-run, there could be dynamic effects from antipoverty spend that reduce the need for antipoverty assistance.
Intergenerational effects like this could have impacts on cost-benefit analysis of these types of programs. If antipoverty spending today means lower poverty rates in twenty years, that could mean less social costs down the road.
This could have positive long-term effects. Researchers at Washington University at St. Louis estimate child poverty costs the United States about 5.4% of its GDP–over a trillion dollars–every year in the form of loss of economic productivity, increased health and crime costs, and increased costs as a result of child homelessness and maltreatment.
These researchers also estimate that a dollar of spending on reducing child poverty could be worth $7 to $12 in reduced economic costs.
This growing literature on the intergenerational impact of antipoverty spending is key to understanding how we spend dollars today. While it is easy to dwell on the costs of antipoverty programs, understanding their benefits will give us a more complete picture of the policy decision to address poverty. In general, it seems the spending on poverty is a worthwhile investment. If we can fight poverty today and tomorrow at the same time, why would we choose not to?