Category Archive: Reviews

  1. Renegotiating Education

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    Indebted: How Families Make College Work at Any Cost
    by Caitlin Zaloom
    Princeton University Press, 2019

    Indebted is anthropologist and NYU Professor Caitlin Zaloom’s deep dive into the middle-class American family’s struggle to solve the college cost puzzle. Its animating question: How can middle-class families maintain their status and provide their children with as much opportunity as possible? And do so while facing stagnant wages, structural racism, rising inequality, limited savings, weakening safety nets, labyrinthine financial aid paperwork, and surging costs for housing, healthcare, and education? Through interviews with students and families, Zaloom reveals the brokenness of what she terms the “student finance complex”—the web of private, direct, or Federal loans mixed with grants and scholarships—and connects these particular struggles to the broader failures of mainstream economic theory. The book urges readers to rethink the current system of higher education finance, and look to feminist economics and social reproduction theory for a better way to think about education and the economy.

    Middle class / ˈmɪdəl klæs/ has too much to qualify for aid, but not enough to pay for college

    Indebted defines the middle-class in terms of the challenge of college financing. In place of the empty political signifier, Zaloom gives ‘middle-class’ clear parameters: households that have too much to qualify for a full-ride, but not enough to fully cover college costs. Foregrounding the challenges of this group is not meant to invalidate the struggles of lower income households who do qualify for full aid; Zaloom recognizes that these groups often face a myriad of other barriers to higher education. As research by Sara Goldrick-Rab and Anthony Abram Jack has shown, a full scholarship may still mean hunger, homelessness, and stigma for low-income students. By focusing on the middle-class, Zaloom illuminates a contradictory form of class consciousness which is proliferating in an ever more unequal economy—a collision between aspirational mobility and financial reality.

    In many ways, this contradiction reflects a first-hand experience with the failures of mainstream economic theory and the policies and institutions that adopt its assumptions—including the American higher education system.

    Permanent Income, Human Capital, and the Household

    Through the lived experiences of families and students, Zaloom’s book subtly condemns mainstream economics. In the “student finance complex,” policy has assumed that consumers are rational agents able to make calculated financial decisions around debt. In the textbook version of Milton Friedman’s permanent income hypothesis, individuals smooth their income over their lifetime, and make accordingly rational decisions about borrowing from their future selves for investments in the present.

    In a labor market like ours, marked by growing inequality and a declining labor share of income, a college degree still offers better returns than no degree at all—but those gains are often not enough to keep up with one’s debt load. In fact, research demonstrates the constraints that debt places on the occupational choices and mobility of many borrowers—an effect that Zaloom’s interviews also show, such as that with Kimberly and Clarice who both experience debt limiting their life choices after graduation.

    We meet Kimberly as she enters Professor Zaloom’s office in tears during the final weeks of her senior year. Studying social inequalities, Kimberly is a bright and adventurous student, who was engaged in activism in New York and globally. Faced with repaying her student loans six months after her upcoming graduation, Kimberly’s tears are triggered by a difficult decision: she was offered a job at a salary high enough to pay her loans and stay in the city, but with a company that facilitated the outsourcing of jobs. Despite the crisis of conscience, Kimberly felt she had no choice but to take the job, especially so that she could stay in New York. Kimberly’s family had supported her in her pursuits to attend college in New York, as it had been her childhood dream, but when it came to her younger sister, the family could only look at in-state schools in Pennsylvania.

    Clarice grew up with economic struggles—her mother’s car repossessed, the stress of credit cards, and her father unemployed—but to pursue her dream of college in New York City she was set to take on around $60,000 of student debt herself and her mother and step-father around $36,000, even with a generous aid package. Clarice’s mother worried about the limitations debt would pose: “Now, we talked about it in great length when she made these decisions… [I told her], you’re making decisions today, Clarice, that are going to affect your whole life. You might not be able to buy a home. You might not be able to own a car. You have to make choices.”

    The permanent income hypothesis is leveraged on a key assumption: perfect information about the future. But in reality, the future is fundamentally uncertain, which gives students and families the impossible task of weighing the cost of student debt against potential future outcomes that are difficult to know or predict.

    Despite the fact that the future is unpredictable, the permanent income hypothesis is still embedded in the economic thinking that justifies the reliance on student debt. Zaloom cites the work of economists Beth Akers, Matthew Chingos, and Sandy Baum, arguing “that young adults and their families should adopt a proleptic view, anticipating young adults’ future successes as if they are already a given… By reducing debt to a transaction between present and future, Akers and Chingos describe student borrowers primarily as future successful workers, drawing an income that they direct toward their younger, poorer selves.”

    Loans might not pose a problem if students were to graduate, earn high incomes, and repay them easily. But in reality, the student finance complex of direct, Federal, and private loans is a confusing patchwork of strict terms and compounding high interest rates—and often punitive in dealing with issues of forbearance or bankruptcy. Despite this information, students continue to accumulate loans. And as Zaloom shows, when loans fall short, cost-shifting the burden of college onto families means that many forgo their own retirement and even work additional jobs—just to afford a shot at opportunity for their children.

    Not only does the student finance complex assume permanent income, it also assumes a Beckerian model of the family, in which parents rationally invest in their children expecting returns to human capital. Zaloom shows us instead that families are willing to make large sacrifices for a return on investment in their children’s education, but more importantly to give their children opportunities and experiences, regardless of the return. As an anthropologist, she shows us that for many parents, investing in their children’s future and opportunities isn’t really a matter of economics, but rather a cultural and moral obligation of love. Unfortunately, higher education finance policies and programs prioritize timely repayment over enriching experiences, diverse interactions, and critical thinking. The contradiction between the actual motivations of families and the Beckerian view of education as human capital investment is the subject of Zaloom’s fourth chapter, titled on “Enmeshed Autonomy.”

    Like Becker’s theory of the household, FAFSA (the Free Application for Federal Student Aid) and the college finance complex reflect deep heteronormative assumptions about households, their structure, and how they make decisions. Family structures are always in flux, and often differ greatly by race and class. Zaloom shows the emotional toll that navigating a FAFSA form can have on students—particularly those who didn’t grow up in a two parent household, or whose parents may not cooperate with one another. Assumptions about home life, especially for first-generation college students, could leave students feeling excluded from the higher education system right from the get-go. While Zaloom’s interviews are limited to parents and children navigating the college cost puzzle, one can imagine the additional hurdles faced by students who don’t have parental support, working adults attending college, and students with dependents requiring care.

    As a final note, just like much of mainstream economic theory, the student finance complex fails to account for the legacies of slavery, redlining, and racism that compound inequality. Zaloom’s chapter on Race and Upward Mobility showcases the financial vulnerability that many Black families and families of color experience when paying for college. Credit and finance continue to play an important role in upholding and compounding racial inequality, and the higher education industry is certainly in part to blame—just see Tressie McMillian Cottom’s Lower Ed for more on the predatory practices of for-profits targeting those most vulnerable in the economy.

    At Any Cost?

    At the crux of Zaloom’s work is the following question: what exactly drives the desire for a college education even when the returns are uncertain? She uncovers the cultural importance of aspiring for mobility, and the drive that middle class parents have to provide their children with bountiful opportunities regardless of cost or financial returns. In fact, many families in the interviews desire and value the opportunity for self-development and exposure to the broader world—values that, in their view, help facilitate autonomy, democracy, and a more equal society.

    Zaloom argues that the higher education finance industry monetizes a drive based on family bonds and love. But it’s important to step back and ask why it is that middle class families are so compelled to procure opportunity at any cost, and whether this drive produces costs for others. While middle-class families largely end up paying the price for this system through tuition and debt, the behavior they’re compelled to engage in emulates the opportunity hoarding of the wealthy. Opportunity hoarding, superficially demonstrated by the college admissions scandal, is a dynamic that has real impacts for middle- and lower-income students. It is in part what drives problematic trends like “school choice” and school district succession, which reinforce inequality. In a competitive, capitalist society, dynamics like these pit many middle, lower, and working class families against one another. The drive for opportunity at all costs is a coerced result of a capitalist economy where everyone but the ultra-rich seem to be losing ground. By focusing on the middle-class, Zaloom allows for an examination of this contradiction.

    To ultimately resolve the contradiction of opportunity at all costs in an unequal economy, rethinking education will require stepping beyond the individual-level and seeing education as we should: a public good with vast social benefits.

    Facing the Contradiction: Feminist Theory, Forgiveness and Reinvestment

    Indebted tells the story of a middle-class at a crossroads of class consciousness: aware that opportunity and mobility are growing scarcer, yet willing to do whatever it takes to get it. Against the dominant patterns, Zaloom introduces alternative ways to view finance, education, and the economy, drawing on work by feminists such as Nancy Fraser. In the first chapter, she incorporates Fraser’s work on social reproduction theory, which, in Zaloom’s gloss, shows how “the entire economic system ‘free rides’ on the care and provisioning that families supply and ‘accords them no monetized value.’” Zaloom takes it a step further: today’s middle class families provide an “economic boon” by speculating in college finance. The financial system monetizes the drive—based on love, care, and moral obligations—that families have to provide opportunity to their children. Doing so creates a market ripe for pernicious and exploitative lending. So what’s the way forward?

    Zaloom shows the brokenness of higher education finance, but leaves it to the reader to consider the ways out. While she points to ideas like increased investment in public colleges and universities, and income based repayment plans akin to those in Australia, we are still left with the question of implementation in the American context, where the maze of income-based and income-contingent plans barely seem to be working (in some cases, by design).

    Understanding the place of education within the process of social reproduction and as a potential site of intervention in the economy allows us to reframe it as a public good with immense social benefits. Education can move away from an individual investment in future earnings, and towards the right of everyone to expand their capabilities and opportunities. This way of thinking moves beyond viewing student debt as a failure of individual choice, and instead as a collective issue worth fixing, for everyone.

    Renegotiating education then can go beyond just free tuition and income based repayment plans. We can restructure education in the economy, not only to promote opportunity, but also to reinvest in a more sustainable and equal future. Broader policies, such as large-scale debt forgiveness, show great promise in giving more economic opportunity, but also in helping to close racial wealth gaps. Along with measures like reparations and the right to healthcare and housing, debt forgiveness and free college have the potential to transform the economy into a space where everyone has the right to education and opportunity. By interrogating the contradictions that define the middle class, Indebted brings the student finance complex into sharp relief, allowing readers to consider these bigger and bolder ways of reconfiguring higher education finance—and the economy more broadly.

  2. Keynes versus the Keynesians

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    Keynes Against Capitalism
    by James Crotty
    Routledge, 2019

    What drives economic growth and stagnation? What types of methodologies and tools do we need to accurately explain economic epochs in the past and present? What models and policy approaches can lead to prosperity for all? These questions occupied the mind of John Maynard Keynes from World War One until his death in 1946. Keynes, one of the most influential economists of all time, is often claimed to have “saved capitalism.” His legacy, as understood by most of the economics profession, was to cure laissez-faire capitalism with countercyclical fiscal policy—using expansionary government spending during recessions to increase output and employment.

    In his new book, Keynes Against Capitalism, economist James Crotty argues that this interpretation of Keynes is profoundly mistaken. Keynes, Crotty argues, wanted to replace capitalism with his own program of “liberal socialism.” Through the book, he demonstrates that 1) Keynes fundamentally rejected the theoretical model that undergirds laissez-faire capitalism; and 2) the cornerstone of Keynes’ liberal socialism program was permanent, large-scale public and semi-public investment guided by the state, accompanied by low interest rates and capital controls.

    This review will summarize these two central arguments and then go on to discuss the book’s relevance to the current macroeconomic environment—in particular, contemporary debates on secular stagnation, short-termism, and the role of public investment in the economy.

    Rejection of classical theory

    Crotty argues that Keynes could not have wanted to “save capitalism” given that he dedicated his entire career to critiquing the classical economic model. He shows that Keynes rejected three central conclusions of classical theory: 1) when the economy is operating normally, the productive capacity of both labor and capital is maximized; 2) if something moves the economy away from this point, “market forces” will move the economy back towards the full employment of all productive resources; and 3) once the economy is at full employment only an external “shock” can move it away from full employment. In addition to the less-central critiques Keynes made of perfect competition and reversible investment, Crotty traces these three main critiques from their conception as Keynes’s “pre-analytic” vision to their full theoretical development in The General Theory of Employment, Interest and Money.

    First, Crotty argues that, after WWI, Keynes began to believe that powerful engines of capital accumulation were necessary for long-term eras of prosperity. Specifically, Keynes became convinced that the unique characteristics of the 19th century—such as rapid population growth, major technological innovation, and war—were responsible for Britain’s extraordinary economic growth. Long-term, sustainable growth engines such as these would provide consistent capital investment, regardless of short-run profit expectations. Without these factors, there was no reason to expect the economy would remain stable at full employment since capital investment on a consistent basis would not be guaranteed. In fact, it was much more likely the economy would “stagnate” at high levels of unemployment. This directly contradicts the first central conclusion of classical theory.

    Second, Crotty shows that Keynes began to reject the idea that the economy would automatically stabilize itself if it deviated from full employment. This was obvious to Keynes after he witnessed the destruction that deflation had wreaked on the interwar British economy. According to classical theory, two mechanisms would stabilize any deviation from equilibrium: wage-price deflation and declining interest rates. When there is an excess supply of labor, nominal wages and prices should fall because workers are competing for scarce jobs and firms are competing for scarce customers. Once real wages fall, firms will hire more workers. This will increase employment and output thus returning the economy to full productive capacity. Keynes argued that deflation is more likely to destabilize the economy because deflation can cause defaults in the financial sector which can lead to a financial panic. More specifically, deflation can cause asset prices to fall. If the value of assets a person or business owns decreases below the value of debts owed, the person or business becomes insolvent. Widespread insolvency makes lenders fearful of lending and can cause liquidity to dry up. This creates more defaults, more insolvency, and less liquidity. In this way, Keynes argued deflation was much more likely to wreak havoc on an economy than stabilize it.

    Crotty draws on Keynes’s analysis of U.S. financial markets to discuss Keynes’s third major critique of classical theory—the rejection of the idea that once the economy is at full employment only an external shock (for example, an increase in the price of imported oil) can destabilize it. After observing U.S. financial markets in the early 1930s, Keynes began to see how instability emerges out of seemingly stable economic moments. He argued that financial markets are anything but efficient and well-behaved; they are prone to bouts of mania and panics which can disrupt the economy from within. For example, periods of prolonged economic growth and prosperity can increase confidence and the willingness to take risks. These “animal spirits,” as he famously put it, can lead to deviations of stock prices from their underlying fundamental value, generating a bubble. Once it becomes clear stock prices have become substantially overvalued and investors begin frantically selling the stock, a panic can set in.

    The methodological theme that underlies Keynes’s three central rejections of classical theory’s conclusions is the realism of assumptions. Keynes argued that because classical theory’s assumptions do not reflect the real economy, the classical model is not useful for solving problems “of the actual world.” The first classical theory conclusion requires that the unique conditions of the 19th century continue indefinitely. The second requires that wage and price deflation occur seamlessly, prices fall less than wages, and the deflation of the real wage encourages firms to hire more workers. The third assumes that the future is inherently knowable and the probability of all possible events can be calculated indefinitely through time. The reason why classical theory drew conclusions that did not reflect the actual economic experience of Britain in the early twentieth century is because the theory’s assumptions are unrealistic.

    Crotty argues that this is why Keynes used the assumption of fundamental uncertainty to underlie all his models and theories. Keynes believed that the future was inherently unknowable. We may be able to calculate the probabilities of death, but how can we possibly know when we will die? Because humans are faced with an unknowable future, Keynes argued that they develop decision-making processes based on heuristics or rules-of-thumb. If this type of human behavior is assumed, the entire macroeconomic model changes. Bubbles, manias, and panics in financial markets can lead to erroneous expectations and decreased confidence, causing declines in investment that lead to decreased output and employment.

    Development of Keynes’s macroeconomic theory

    Crotty makes it clear that the cornerstone of Keynes’s macroeconomic theory was a large-scale, permanent public investment program that would manage and administer about two-thirds of national investment. A public investment program of this scope, along with all of the other supporting policies Keynes advocated for, Crotty argues, is not any form of capitalism as we know it. In other words, Keynes’s version of public investment was, “definitely not a short-term government stimulus program designed to ‘kickstart’ a temporarily sluggish economy and then let free enterprise take over.”

    According to him, Keynes had two key motivations for his large-scale public investment program. First, the “secular stagnation” that plagued Britain during the interwar years was something Keynes saw as a problem confronting all mature capitalist economies. As a nation’s capital stock grows, it becomes less profitable to make new investments, meaning that, at some point, investment will stagnate. Second, financial markets, under the assumption of fundamental uncertainty, can cause crashes that shatter people’s expectations and make them afraid to take risks in the near future, “Business is weighted down by timidity… No one is ready to plant seeds which only a long summer can bring to fruit.” This behavior can cause volatile or weak investment. For these two reasons, Keynes argued that it was essential for the government to plan and execute the lion’s share of investment. In his model, this investment would be accompanied by low interest rates and capital controls to prevent savings from leaving the country in search of higher returns.

    The contemporary macroeconomic environment

    The book provides a set of policy proposals for economies struggling with secular stagnation and volatile or weak investment caused by unstable financial markets. This could arguably describe the U.S. economy in recent years. Economists Larry Summers and Paul Krugman have both revived the “secular stagnation” hypothesis as a possible explanation for slow economic growth following the Great Recession. As late as 2018, Larry Summers warned that the threat of secular stagnation was not over.

    Weak business investment has been linked to “short-termism”—the focus on short-term gains by corporate managers and financial markets in general. One of the major causes of short-termism is the increasing power of shareholders relative to other stakeholders in the firm. Keynes argued that managers and shareholders make business investment decisions very differently. When companies were primarily family-owned, managers had “skin in the game” and would not invest purely in pursuit of profit, they “embarked on business as a way of life, not relying on a precise calculation of prospective profit.” One of Keynes’s solutions to the “insane” financial market casinos of the early 1930’s was to lengthen the amount of time shareholders were required to hold their shares. In a 2015 paper, Mike Konczal, J.W. Mason, and I discuss this solution as a potential way to address short-termism. Other solutions we propose are directly related to Keynes’s insights on manager and shareholder investment behavior. For example, removing stock options from CEO pay would eliminate the incentive for managers to behave like shareholders. Establishing worker representation on corporate boards would provide countervailing power to shareholders’ influence on business investment decisions.

    The book also offers an institutional framework for a large-scale public and semi-public investment program. The cornerstone of this program would be a Board of National Investment. The responsibilities of the Board would be to:

    … gather the necessary sources of finance and allocate them to pay for economically and socially efficient investment projects in a manner calculated to ensure the full employment over the long run.

    Beyond the theoretical debates, Crotty also identifies the types of institutions and capital projects Keynes had in mind. By “semi-public institutions” Keynes meant organizations like universities, utility providers, and transportation centers. Capital projects would include but not be limited to: building houses and roads, expanding electric power generation, afforestation, slum clearance, and the development of canals, docks, and harbors.

    However, none of Crotty’s descriptions of these projects include an explicit discussion of the practical barriers that might mar a large-scale public investment program. Despite Keynes’s attention to the realism of assumptions and applicability to the real-world, he never addressed, for example, how the pace of capital investment could be sped up or slowed down in practice. My forthcoming dissertation research explores this very question. Using interviews with state and local government budget officials, my research addresses both the realism of assumptions and applicability of a Keynesian program to the real-world. The initial results show that attempting to adjust the pace of capital spending can be fraught with institutional and practical barriers.

    Keynes versus the Keynesians

    A huge value of the book is that it differentiates the messages of Keynes’s original work from modern-day “Keynesians.” Crotty shows that the IS-LM incarnation of Keynes captured very little of Keynes’s beliefs and left out the most important parts of his thought. What these “Keynesians” leave out includes: the realism of assumptions and fundamental uncertainty; the attack on classical theory’s stabilizing market forces of wage-price deflation and decreasing interest rates; secular stagnation; the importance of balance sheets; the ability of an economy to endogenously create instability through financial markets; and virtually all of the policy prescriptions that Keynes proposed throughout his career. According to Crotty, you “cannot generate Keynes’s favored Liberal Socialist policy regime from an IS-LM economic model.”

    There is hope that the macroeconomics discipline might finally be catching on to Keynes’s relentless insistence that the assumptions of any model must be applicable to the real-world. In a recent article reflecting this turn, Heather Boushey quotes Emmanuel Saez: “If the data don’t fit the theory, change the theory.”

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

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    Introduction

    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. On the micro level, you can scrutinize what happens to individuals and households that receive a transfer, e.g., how does children’s schooling change, how does consumption change? On the meso level, you can explore how groups of households or villages, community organizations, and community institutions change in response to a saturated transfer effect. The third level, macro, is the golden question of UBI research, but also the hardest to address: what does UBI do at the size of a province or nation? We’ve included the Levy Institute model as a starting point for macro-analysis. But this literature review mainly looks at what these studies reveal to be the micro and meso level effects, economic and social, including effects on schooling, health, crime, and labor markets.

    What trends can we draw from these studies? This won’t be a surprise: overall, cash increases consumption. 

    Perhaps more surprising to UBI skeptics, the research overall does not show that cash transfers drastically lower labor supply by decreasing motivation to work. The negative effect of cash on labor supply is moderate if present at all. As a whole, the research also does not show that recipients of cash transfers are spending on temptation goods—rather, they’re putting the money into smoothing consumption, like increased food security and purchases of durable goods.

    Beyond that, one intriguing meta-research trend is how few of these studies address labor market effects, and how broadly they define the labor market effects. Most of the studies look at overall labor market equilibrium at most, and do not delve into a more nuanced analysis of, for example, number of hours worked, people moving in and out of full-time jobs and contract work, changing types of work, changing quality of life, and so on. Only one paper on the conditional cash transfer program in Mexico in the list covers these areas with nuance. We hope to see more comprehensive research on labor effects of a basic income in the future.

    As you read through this informal draft of what will become a formal academic review, we want to draw your attention to a few useful distinctions: note differences between micro, meso, and macro level effects; differences in interventions; how different studies measure different effects; and the differences in the evidence from pilots in developing and developed world. Finally, there is a distinction between short-term cash interventions and long-term cash interventions–pilots that gave people money for a year, or decades, or indefinitely. We’ve included literature pertinent to both effects, but it’s important to note that this evidence is relevant to UBI, as ideally conceived, only partially, since a UBI would involve an indefinite disbursement of a transfer to cover minimum standards of living for a population. 

    Universal Basic Income

    Universal basic income is one of several terms used to describe a system of regular and unconditional direct cash payments for all individuals in a given country or region. There are three important criteria which a basic income usually satisfies. First, it is given universally within a predefined community, which means treatment is not means-tested and is not meant for only a subsection of the community selected based on certain criteria. Second, the cash payments must be large enough to support a decent standard of living in the pre-defined community. Third, it usually constitutes a long-term stream of transfers to support the living needs of its recipients over a sizeable duration. 

    In recent years, a wide range of public, non-profit, and private actors have brought renewed attention to this concept, particularly its viability in the United States and other developed countries. The impact of a universal basic income is multi-dimensional—it can affect one’s consumption, work, physical and mental health, education and social relationships. It also has wide-reaching macroeconomic effects, potentially impacting economic growth, labor market outcomes and public finance. 

    We present here a list of papers and articles which touch on the various effects of and considerations behind designing and implementing a universal basic income. The pilots discussed in these papers usually fulfill (or come close to fulfilling) all three criteria of being a universal basic income. They vary by location and size, but taken together, these papers present some of the preliminary reported effects of a Basic Income.

    • Using data from the 2017 Current Population Survey, Hoynes and Rothstein (2018) calculate that funding a complete UBI program would amount to around double the aggregate cost of present income transfers in the US. They argue that replacing existing anti-poverty programs with a UBI is likely to have negative impacts. However, existing literature is unable to assess the impact of a truly universal UBI, nor does it adequately examine the long term effects resulting from human capital development. 
    • In an August 2018 paper, Maximilian Kasy (2018) argues that a UBI holds economic, moral, and political advantages over existing subsidies like Earned Income Tax Credits (EITC). Economically, a UBI would produce a more equal income distribution by balancing labor market distortions resulting from EITC incentives to find work. It would also rectify the wage repression caused by these same incentives. Morally, a UBI increases individual liberty as well as equality of opportunity. People would face reduced barriers to exiting abusive relationships on which they economically depend, and unpaid care workers, artists, and community activists would receive remuneration. Politically, a UBI would see broader democratic support than means tested benefits. Kasy argues that a viable political case for a UBI must move beyond distinctions between the “deserving” and “undeserving” poor, replacing them instead with a shared vision of political interests. 
    • Abhijit Banerjee, Paul Niehaus, and Tavneet Suri (2018) summarize findings on the potential consequences of a UBI for developing countries. By alleviating credit, insurance, and psychological constraints to economic activity, Banerjee et. al argue that a UBI may generate economic growth. They also suggest that a UBI may overcome two drawbacks of targeted transfers: their constraining effect on political pressure for the preservation and expansion of benefit schemes, and the possible disincentivizing effects they could hold for labor markets. 
    • In a 92-page digital book, Karl Wilderquist (2018) deals with problems of communication and interest inherent to policymaking in general, and UBI research in particular. UBI experiments are fundamentally compromised by the fact that researchers are unable ensure recipients receive the net benefit they would be left with after paying taxes. Added to this are challenges arising from community effects, long term effects, the hawthorne effect, the streetlight effect, and difficulty distinguishing between consequences arising from the size and type of program. The caveats to research findings are lost on policy makers and the public, who seek conclusive answers to fundamental questions regarding UBI consequences and implementation.  In light of these imperfections, Wilderquist recommends that researchers recognize that their work is embedded within a broader public discussion and focus on communicating what they can definitively contribute, while addressing the broader moral and political questions inherent to UBI debates. 
    • In this IMF working paper, Francese and Prady (2018) develop a two dimensional model which incorporates measures of UBI generosity, coverage, and progressivity. Their analysis illuminates three trade-offs policymakers face when considering UBI implementation: effective coverage of poor households risks leakages to richer households, generosity of transfers may produce work disincentives, and the fiscal cost of a UBI may detract resources from alternative programs. Using a series of static simulations, the report concludes that a UBI calibrated at 25% of net median income would produce a 5 point reduction in the gini coefficient and significantly reduce poverty in both developed and developing countries, but at a high fiscal cost.
    • Earlier IMF research by Coady and Prady (2018) uses India as a case study to test the tradeoffs associated with UBI adoption. They demonstrate that replacing the 2011 Public Distribution System (which provides low income families with subsidies for wheat, sugar, and kerosene) with a UBI was found to increase coverage of low income households, but at the expense of leakage to some higher income households. A significant number of current PDS recipients would lose from the transition. However, replacing existing inefficient energy subsidies with a UBI was clearly found to have distributional gains and increase incentives for improving energy efficiency. 
    • In the Journal of Economic Perspectives, Hanna and Olken (2018) consider the potential for a UBI program to help governments of developing countries overcome targeting challenges resulting from the size of the informal sector. They investigate the empirical trade-offs of a UBI using data from Indonesia and Peru. Their research reveals a tradeoff between eliminating exclusion error and effectively meeting the needs of low income individuals. They conclude that targeting methods, while imperfect, can deliver more to recipients on an as-needed basis than universal programs. The welfare gains generated by targeted programs offset the losses in horizontal equity resulting from a portion of low income families failing to receive support. 
    • In this (2018) ILO Working Paper, Ortiz et. al argue that regressive UBI policies involving the elimination of other social safety nets are likely to generate greater inequalities and consequently fail to comply with ILO standards. The report finds that a progressive UBI which complies with ILO standards for income security would range in cost from 17.9% of GDP in the Middle East to about 25% in Asia, Europe, and Latin America. Sub-Saharan Africa constitutes an outlier to the general findings, with a UBI expected to cost about 50.3% of GDP. The authors argue that funding a UBI in this region is largely a question of priority– the cost of the program for all low income countries would constitute only 0.68% of global GDP.
    • Ravallion (2018) critically reviews both guaranteed income and guaranteed work from a policy perspective. With versions of the two rights-based policies in India as a case study, he argues that cost, targeting, corruption, and context variation across settings are central restrictions on unequivocal support of either policy in developing countries. In the case of India, Ravallion offers evidence that the country’s employment guarantee programs have been less effective at poverty alleviation than one might expect from a universal cash transfer program. He argues that the question of whether universal transfer programs will reduce poverty more than workfare or finely-targeted transfers is an empirical one that will vary across contexts, but suggests that the benefits of universal programs are worth consideration in certain settings. #EconomicEffects #Policy
    • The Alaska Permanent Fund has paid a yearly dividend to state residents since 1982. To study the impact of the fund on labor market outcomes, Jones and Marinescu (2018) compare Alaska with a synthetic control constructed from a weighted average of control states. They find that universal and permanent cash transfers do not significantly decrease aggregate employment. One possible explanation is that general equilibrium effects will offset the tendency for cash transfers to decrease labor supply. #LaborMarketEffects
    • Salehi-Isfahani and Mostafavi-Dehzooei (2018) study the effects of large scale cash transfer program in Iran starting in 2011, which distributed a fixed amount (amounting to 29% of the median per capita household income) of cash to all Iranians (with a 95% take-up). Using panel data and a difference-in-differences model, they find no evidence that cash transfers reduced labor supply, except among youth (20-29 years), where they find a negative effect. They also find that service sector workers increased their hours of work. #LaborMarketEffects
    • Schulz (2017) argues that a universal basic income can help combat historical structural inequalities inherited by modern women by freeing women-led households from the vulnerability of poverty and their subsequent marginalization. The authors suggest that an additional source of income can also help balance unequal power relationships with male relatives and partners. #SocialEffects
    • Using the Levy Institute macroeconomic model, Nikiforos, Steinbaum, and Zezza (2017) show that enacting a UBI and paying for it with increases to the federal debt would grow the economy. The model also shows economic growth if the policy were paid for with increased taxes on households. #EconomicEffects
    • Based on a review of the empirical results from U.S. and Canadian negative income tax experiments, the Alaska Permanent Fund Dividend, the Eastern Band of Cherokees casino dividend program, and other assorted studies on unconditional cash transfer programs, Marinescu (2017) finds no impact or a moderate decrease in labor participation. She finds additional effects in other quality-of-life benefits, such as improved mental and physical health, educational outcomes, parenting, and reduced criminal activity. #EconomicEffects #PsychologicalEffects #LaborMarkerEffects #EducationalEffects
    • A model developed by the District of Columbia’s City Council in a policy and impact statement on Basic Income offered contrasting results. According to their simulation model, providing a minimum income that is equal to 100% of the Federal Poverty Level is detrimental to the District’s economic growth and employment. The effect is worsened when the minimum income provided is raised to 450% of the Federal Poverty Level. They recommend further study on how such a policy intervention can be funded.
    • Calnitsky and Latner (2017) analyze the labor market effects of the Manitoba Basic Annual Income Experiment (Mincome) (1975-77) and report that the moderately sized basic income generated an 11.3 percentage point reduction in labor market participation, however this was largely driven by young and single-member household participants. They also note 30% of this reduction can be attributed to “social interaction” or “community context” effects. #LaborMarketEffects
    • Colombino (2015) argues that an unconditional basic income can redistribute the gains from automation and globalization, build a buffer against shocks and systemic risks, and generate positive labor supply incentives amongst the poor. While Colombino suggests a UBI is simple, he notes that financing it likely requires higher taxes, hence tax systems need to be carefully designed to avoid canceling the potential benefits of unconditional basic income through efficiency losses. #EconomicEffects #LaborMarketEffects
    • Assessing a study involving the distribution of a monthly basic income grant of NAD100 to around 1000 citizens in Namibia, Rigmar (2013) reports that the study lacked transparency and rigorous reporting, and the results raise concerns on the validity of the reported findings. Therefore, the experiment could not address questions about basic income in a  political decision making context. #ResearchDesign
    • According to Forget, Peden and Strobel (2013), empirical evidence and social theories suggest that cash transfers not only affect individual decision-making but also impact how households interact within a community, hence it is important to understand the social impact of basic income when addressing questions on how best to design cash transfer schemes. #SocialEffects
    • In the Manitoba basic annual income field experiment (Mincome) from 1974 to 1979, families with no income received 60% of the Statistics Canada Low-Income Cut-Off (LICO). Forget (2011) reports this resulted in an 8.5 percent reduction in hospitalization rates and reduced contact with physicians, showing that a relatively modest guaranteed annual income can improve population health and bring significant health system savings. #HealthEffects
    • Akee et al (2010) assessed the effects of a universal cash transfer administered by  Eastern Band Cherokee, and highlight that regular unconditional cash transfers led to the children of recipients achieving higher levels of education in their young adulthood and a lower incidence of criminality for minor offenses, likely attributable to increased stability and support in the home. #EducationalEffects #SocialEffects

    Earned Income, Earned Income Tax Credit and Negative Income Tax 

    A negative income tax (NIT) is a progressive tax where households whose income is below a predetermined level receive an income supplement. An earned income tax credit is a refundable tax credit for workers of low to middle income, which has a similar effect of creating a progressive tax system. These differ from a basic income as they are not distributed universally within a predefined community, and the transfer amounts depend on the income level of the household. 

    We include earned income studies in this review as the effects of a lump-sum increase in income can be relevant to understanding the effects of a basic income. One of the primary concerns economists have regarding a NIT is that it is distortionary and affects recipients’ incentive to work. Since unemployed individuals are ineligible for benefits, an NIT is thought to be better than a Basic Income as it still incentivizes households to work. On the other hand, some economists think that a NIT will reduce labor supply, since the magnitude of the benefit distributed varies negatively with the income level of the household. As such, many studies have been conducted to analyze what exactly is the impact of an NIT on labor supply and employment outcomes. Other studies have also documented economic, health and social effects of an NIT which policymakers should consider. 

    • The MDRC (2018) presents findings from a three year RCT of the Paycheck Plus program in New York City. The study found that Paycheck Plus reduced severe poverty, marginally increased employment among women and disadvantaged men, increased tax filing rates, and increased child support payments among noncustodial parents. Participants also reported reduced depression and/or anxiety. Analysis of these findings is expected to continue upon the termination of a similar RCT in Atlanta. 
    • Bastian and Jones (2018) reconsider the cost of EITC in light of the behavioral changes it elicits in recipients. Using thirty years’ worth of data on EITC policy expansions, they conclude that EITC is one of the least expensive anti-poverty programs in the United States. For every $350 in EITC spending, total government revenues increased by $303, compensating for 87% of the program cost through positive spillover effects. Expansions in EITC were found to Increase average annual earnings and labor supply, reflecting an overall supply elasticity of 0.33. EITC expansions were also found to increase payroll and sales taxes paid and reduce dependence on public assistance.
    • Using U.S. administrative prison release records released between 2000 and 2014, Agan and Makowsky (2018) use a difference-in-differences strategy to identify the effect of minimum wage increases and EITCs on recidivism. In their analysis on EITC, the availability of state top-ups to the federal EITC is associated with a 1.6 percentage point lower rate of recidivism amongst women, while having no significant effect on men. #SocialEffects
    • Bastian and Michelmore (2018) examine the long-run impact of an EITC on children who were exposed to EITC variations by using EITC exposure as an instrument for family income. With data from the 1968 to 2013 waves of the Panel Study of Income Dynamics  they find that an exogenous shock in the form of increased pre-tax income induced by a change in EITC policy increased educational attainment and employment in adulthood. Their reduced-form estimate suggest that an increase of $1000 in EITC exposure increases high school graduation and college graduation by 1.3% and 4.2% respectively for children exposed to the increase when they were between the ages of 13 to 18. It also raises the probability of them being employed by 1.0%. However, EITC exposure had no significant effects on children below the age of 13 conditional upon later exposure. #EducationalEffects #LaborMarketEffects
    • The EITC has been found to reduce poverty rates as well as improve health and education outcomes. However, for families with two or fewer children, the maximum credit distributed to them has remained the same in inflation-adjusted terms since 1996. As such, Hoynes et al (2017) propose to increase the EITC credit by 10% while maintaining its current structure so as to increase wages which have been stagnating, further increase employment, and bring about 600,000 people out of poverty. #EconomicEffects #LaborMarketEffects #FiscalPolicy
    • Wiederspan et al (2015) argue that a negative income tax can help fill the gaps in current federal means-tested assistance programs. While past NIT experiments have led to a reduction in labor supply, the effects were not as large as often speculated, and time saved from work was spent on childcare and looking for work. Moreover, those experiments did not measure long-term, general equilibrium effects. The authors show that an NIT could be funded using expenditures from existing programs which it could replace, and if the marginal tax rate was chosen carefully. Finally, they assert that a NIT could be made more popular by appealing to moral values rather than focusing on the technical policy details. #LaborSupplyEffects #MacroEffects
    • The Earned Income Tax Credit (EITC) in the U.S. serves to offset the payroll taxes and supplement the wages of low-income workers, with payments concentrated in February and March when tax refunds are received. A 2008 study by Goodman-Bacon and McGranahan found that in 2004, the recipients concentrated most of their household spending in vehicle purchases and transportation spending in response to their EITC payments. #EconomicEffects
    • Based on a survey on five NIT experiments in Canada and the U.S. from 1969 to 1980, Widerquist (2005) concludes that labor market effects of negative income tax experiments are often overstated and misinterpreted, since without an estimate of the labor market demand response, researchers cannot estimate the overall market response. #LaborMarketEffects
    • Robin’s (1985) comparison of four negative income tax experiments sponsored by the US federal government between 1968 and 1982 found that a negative income tax led to a fall in labor supply by about the equivalent of two weeks of full-time employment for husbands, three weeks for wives and single female heads, and four weeks for youth. #LaborMarketEffects
    • A negative income tax led to an increase in the average reading achievement of children in grades 4 through 6, but did not have any observable beneficial effects for older children, according to this 1979 study. #EducationalEffects

    Cash Transfers, Wealth Transfers and Unearned Income

    This category lists papers which look at the impact of cash transfer programs which were excluded from the first section due to the nature (smaller amounts of disbursement) and size (smaller sample size) of the experiments. These cash transfers usually implemented by governments, NGOs or charities. A plethora of studies has been conducted to analyze how cash transfer programs affect economic, social, employment and health-related outcomes of households, and how various aspects of cash transfer programs, such as the program duration, magnitude of cash transfers and frequency of transfers can alter these effects. Some programs provide cash transfers with no strings attached, while others come with conditions that require recipients to take certain actions which will improve other aspects of their lives. In such programs, cash may be seen as an incentive or an enabler for recipients. Some studies also look at how cash transfer programs may have differential effects depending who in the household is a recipient of the transfer. These are all important considerations that need to be taken into account when designing a cash transfer program.

    Evidence
    • In a World Bank Policy Research Working Paper, Baird et. al (2018) examine the intergenerational effects of Conditional and Unconditional Cash Transfers (CCTs and UCTs). Between 2007 and 2012, they conducted a series of interviews with women aged 13-22 in Zomba, Malawi. Study participants received CCTs until 2009, and subsequent interviews allowed the authors to trace the impact of cash transfers on their lives as they established families and transitioned into adulthood. Their research indicates that the significant decline in HIV prevalence, teen pregnancy, and early marriage in UCT recipients did not endure two years after disbursements ended. Out-of-school recipients of CCTs, however, did exhibit higher educational attainment and a reduction in the number of births, despite showing no long term gains in health, labor market, and empowerment.
    • Bougen et. al (2018) test the ability of Randomized Control Trials (RCTs) to provide evidence for long term impacts in development economics. Among the 170 RCTs which test the impact of both CCTs ad UCTs, they found that only 18 are designed to enable long term research: 6 which have already done so, and 12 which hold the potential for follow up investigations. The remainder of cash transfer RCTs exhibited design or data limitations which prevent continuing research and analysis. The authors argue establishing uniform data collection and tracking protocols across multiple studies may generate comparable estimates on their long term effects, thereby improving external validity. 
    • Wydick (2018) develops a model indicating when cash transfers are likely to significantly and sustainably increase the income of recipients. He argues that small cash transfers will increase the recipient’s present consumption, while generating a continuous dependence on charity. Intermediate levels of cash transfers are likely to increase present consumption while facilitating saving for future consumption. Finally, large cash transfers are expected to generate investments in future productivity that can be expected to transform future income and labor activity. He concludes that large cash transfers which account for deviations in cognitive, behavioural, and aspirational phenomena, and which are situated within a system of complementary policies, programs, and interventions, are likely to be the most effective.
    • Akee et. al (2018) use data from the Great Smoky Mountains Study (GSMS) to examine how UCTs impact voting behavior across two generations. They find that the exogenous UCTs which were administered increased the likelihood that children from low income backgrounds will vote upon adulthood, but had no effect on the voting behaviors of parents, regardless of their socioeconomic background. They suggest that the results are likely driven by higher educational attainment and social capital acquisition, rather than the transmission of voting behavior from parents to children.  
    • Maboshe and Woolard (2018) use a 2014-15 household survey to examine the progressivity of direct taxes and cash transfer programs in South Africa. Both programs are found to be highly progressive, with the top three deciles bearing the overwhelming weight of the tax burden, and cash transfers benefitting the most vulnerable households. Households headed by women, located in rural areas, and with children received significantly more than their counterparts. The South African tax and transfer program contributed to a 0.06 reduction in the Gini coefficient and a two thirds reduction in the rate of inequality.
    • Barham, Macours, and Maluccio (2018) examine the impact of CCT on the long term nutrition, education, and reproductive health of teenage girls. They rely on data compiled from a randomized CCT program in Nicaragua, which divided participants into two treatment groups, one of which began receiving benefits three years prior to the other. They measure outcomes ten years after the program began, and five years after participants in the late treatment group stopped receiving transfers. Girls randomly exposed to CCT in the early treatment group had higher earnings than those who began receiving transfers three years later. They also reached sexual maturity later, had a lower BMI, and exhibited lower overall fertility rates when they reached 18-21 years of age. 
    • Using a two stage randomization design in a randomized controlled trial implemented by GiveDirectly, Haushofer and Shapiro (2013) found that unconditional cash transfers in Kenya led to a rise in food, medical and education expenditures, and a fall in expenditures on alcohol and tobacco. Cash transfers also resulted in large increases in the recipients’ psychological well-being. Their research also suggests that households face savings constraints, since one-off lump-sum transfers tended to be spent on durables. #EconomicEffects #PsychologicalEffects #SocialEffects #EducationalEffects
    • In the same experiment, Haushofer and Shapiro (2018) assess the economic and psychological outcomes three years after the beginning of the GiveDirectly cash transfer program in Kenya. The authors report that recipient households had 40% more assets than non-recipients in the same village, but there were no statistically significant effects in other outcomes. They also note spillover effects, wherein households affected by the spillovers have lower consumption and food security than pure control households. For detailed comments and discussions on this paper’s findings, click the following links from GiveDirectly, the World Bank, and CGDEV’s blog. #EconomicEffects #PsychologicalEffects #SpilloverEffects
    • Kugler and Rojas (2018) assess the effect of the exposure to PROSPERA, a conditional cash transfer program, in Mexico on three education variables: educational attainment, high school education and at least one year of tertiary education, and five employment variables: probability of being employed, the number of hours worked per week, employment quality, likelihood of having an employment contract, the likelihood of having non-wage benefits, and hourly wages. After controlling for multiple hypothesis testing, the authors find significant and positive effects in all cases. The positive effects are however, weaker for women and children of illiterate women. #LaborMarketEffects #EducationalEffects
    • Noting that there are several potential channels via which a cash transfer program can affect labor supply apart from the standard income effect, Baird et al (2018) review a range of studies on conditional and unconditional cash transfers. They conclude that unconditional cash transfer programs, cash transfer programs with conditions unrelated to employment and remittances tend to have limited to no impact on adult labor. On the other hand, cash transfers for job search assistance and small business start-up usually increase labor supply likely by alleviating liquidity and risk constraints, although the effects via these channels cannot be isolated from those due to increases in human capital as well as other general equilibrium effects. #LaborMarketEffects
    • Akee et al (2018) examine the effects of cash transfers from the distribution of casino profits amongst adult Eastern Cherokee tribe members on child development. Using data from the Great Smoky Mountains Study of Youth, they find that an increase in unearned household income led to large positive effects on children’s emotional and behavioral health and positive personality trait development, especially amongst children who did not do as well as their peers in these aspects prior to the treatment. They also find that improved parental behavior and familial relationships was likely to be an important channel via which financial well-being may impact child development. #HealthEffects #SocialEffects
    • Angelucci et al (2017) study both expected income shocks brought about by the PROSPERA program and unexpected income shocks due to health and employment shocks.  They find that an unexpected negative shock in income reduces labor supply, food security, mental health and healthful behavior but does not affect parenting, cognition, risk and time preferences, and aspirations about children’s’ educational attainment. On the other hand, an expected positive shock caused by a conditional cash transfer does not lead to any change in these outcomes apart from increasing disposable income. #EconomicEffects #SocialEffects #LaborMarketEffects #HealthEffects #EducationalEffects
    • Banerjee et al. (2017) studied data collated from seven CCT/UCT/in-kind transfer studies in Africa and Asia and showed that cash transfer programs have no observable impact on one’s propensity to work or the overall number of hours worked for both men and women. #LaborMarketEffects
    • Walker (2017) estimates the effect of exogenous positive income shocks to household income in Kenya on informal taxes and public goods provision. Using surveys of village leaders, and panel and experimental household data from a sample of participants who received a large one-time unconditional cash transfer in GiveDirectly’s RCT, Walker estimates regression models at household, village and sub-location level and reports no significant effects on the amount paid in formal taxes, nor on the  informal tax rate. He notes a 2.4 percentage point increase in county tax payment  which he relates to the fact that  recipient  households  are  more  likely  to  be  self-employed. There is also no attributable effect on public goods provision or the quality of public good provision, indicating no short run effects of the income changes on public good provision or informal taxation systems that can be attributable to the exogenous income shock. #EconomicEffects
    • A systematic review of 201 studies by the Overseas Development Institute (2016) on both conditional and unconditional cash transfer published between 2000 and 2015 finds links to the following: reductions in monetary poverty, increases in total and food expenditure, increases in school attendance, increases in the uptake of health services, and increases in savings, livestock and agricultural ownership. The effect of cash transfers on employment outcomes remains unclear. Higher transfer levels are associated with larger impacts. Longer duration of exposure to cash transfers are linked to greater improvements in outcomes. Cash transfers conditional on certain behaviors more positively affect the outcome related to the behavior than in unconditional cash transfers. #EconomicEffects #HealthEffects #LaborMarketEffects #EducationalEffects
    • Results from New York City’s conditional cash transfer program (2016) for families that received over $8700 on average over a three-year period show that the transfers reduced financial hardship, increased graduation rates for reading-proficient 9th graders who entered high school, and increased households’ use of preventive dental services. It did not affect school outcomes for elementary and middle school students, the use of preventive medical services, and parents’ employment in or earnings from jobs covered by the unemployment insurance system. #EconomicEffects #HealthEffects #EducationalEffects
    • Baird et al (2016) investigates the medium-term effects of a two-year, two-treatment arms cash transfer program to adolescent females in Malawi, where one treated group received cash transfers conditional upon school attendance while the other received equal-sized unconditional cash transfers. They found that while unconditional cash transfers led to reduced teen marriages, live births and HIV infections as well as improvements in psychological wellbeing at the end of the program, these effects were not sustained after two years. Their husbands had relatively lower cognitive ability, although their children born during the program had improved HAZ scores. On the other hand, those that received conditional cash transfers saw sustained positive effects on school attainment, teenage marriage and pregnancy incidences, and desired fertility. They were also more likely to be matched with husbands who had completed secondary school. There are however no gains in other outcomes such as earnings, consumption, health, empowerment and subjective well-beings. #SocialEffects #HealthEffects #EducationalEffects
    • Between 2010 and 2011, the Zambian government launched two unconditional cash transfer pilot programmes, described in this 2016 paper from Handa et al. The Child Grant Program (CGP) targeted all households with a child under three years old in three poor rural districts, while the Multiple Category Targeted Programme (MCP) was implemented in two rural districts and targeted vulnerable households such as those with a disabled family member, or those with a female or elderly head caring for orphans. Bimonthly transfers were made to each household irrespective of size, and this entailed a transfer of USD 24 per month in Purchasing Power Parity terms. ITT estimates made 24 months and 36 months into the study in nine domains, namely total consumption, food security, asset holdings, subjective well-being (relative poverty), income and revenues, finance and debt, material needs, schooling and young child anthropometry, show that that both the CGP and the MCP had statistically significant effects in almost all domains except for schooling and young child anthropometry for the CGP, and incomes and revenues after 24 months for the MCP (effects on young child nutrition were not measured for the MCP). A sizeable multiplier effect is observed given that households spent 59% more than the value of the transfer. #EconomicEffects #HealthEffects #EducationalEffects
    • Ardington, Case, Hosegood (2009) found that in South Africa, large cash transfers in the form of pension payments to the elderly led to increased employment amongst prime-aged adults through labor migration, as a pension increases household resources which can be used to support migrants until they become self-sufficient. The finding implies that pensioners are able to care for small children while prime-aged adults look for work. #LaborMarketEffects
    • In a large-scale unconditional cash transfer program in Indonesia, Bazzi et al (2015) found that timely receipt of cash transfers do not yield expenditure changes relative to non-recipients, while delaying the delivery of the transfers reduces expenditures by 7.5%, suggesting that the impact of cash transfers depends on the timing of transfers. #EconomicEffects
    • Analyzing the long-run impact of the Mother’s Pension program, a government-sponsored welfare program in the US (1911-1935), Aizer et al. (2014) found that male children of successful applicants lived one year longer, received one-third more years of schooling, were less likely to be underweight, and had higher income in adulthood compared to those of rejected mothers. #EconomicEffects #EducationalEffects #HealthEffects
    • Kenya’s Cash Transfer for Orphans and Vulnerable Children Programme (2014) involve a flat monthly transfer of KSH 1500 to ultra-poor families with orphans and vulnerable children aged 17 years and younger. The transfers increased food consumption coming from home production, accumulation of productive assets, and formation of non-farm enterprises, especially amongst females. It also provided more flexibility to families in terms of labor allocation decisions and reduced child labor, especially for boys. However, it had little impact on crop production. #HealthEffects #LaborMarketEffects
    • Cunha (2014) studied a Mexican food assistance program aimed at promoting better nutrition, and found that in-kind food transfers did not lead to meaningful differential improvements in overall consumption and health outcomes as compared to the provision of cash transfers, as the cash was largely spent on nutritious food as well. #HealthEffects
    • McEwen and Stewart (2014) study the effects of the Canadian child allowance program that started in 1945. They highlight that significant correlation between lower income and worse child outcomes (social, cognitive, behavioral, emotional) can be explained by factors usually associated with a lower income, such as lower educational attainment, less employment, and living in a risky neighbourhood. A household’s income itself has a relatively small influence on child outcomes after considering these factors. This suggests that raising a poor household’s income alone may not have a sizeable impact on children outcomes. #EducationalEffects #SocialEffects
    • According to Akee et al. (2013), a cash transfer experiment in North Carolina (US) shows that, controlling for initial health conditions, household cash transfers lead to a larger increase in weight for children from the initially poorest households relative to those from richer households. #HealthEffects
    • Studying the 1832 Cherokee Land Lottery, in which winners were randomly selected, Bleakley and Ferrie (2013) found that winners were on average richer in the long-run, but this was due to a movement of the winners in the middle of the wealth distribution to the upper tail of the wealth distribution. At the same time,  winners in the lower tail of the wealth distribution were unaffected (no movement), hence exacerbating inequality. #EconomicEffects #WealthTransfer
    • Evans and Popova (2017) review the effects of cash transfers on temptation goods, defined as expenditures on alcohol and tobacco. Compiling 44 estimates from 19 studies on conditional and unconditional cash transfers in low- and middle-income countries from 1997-2014, they find with almost no exceptions either an insignificant effect or a significant negative effect of cash transfers on temptation goods. When they differentiate only the estimates from studies which had a randomized design, no estimate was reported to show a positive and significant effect on expenditures on temptation goods. #EconomicEffects 
    • Taylor et al (2013) examine the general equilibrium effects of a cash transfer for orphans and vulnerable children (CT-OVC) in Kenya. Using four administrative and private data sources, they simulate the estimates of income multipliers and highlight significant spillover effects of the CT-OVC transfers in local economies. Local income multipliers are significantly greater than 1 in nominal terms, even when capital and labor constraints limit the local supply response. They note most of the effects are among ineligible households, indicating that the program enables them to access more capital and labor to increase their production in response to local demand. They note variations in impacts across regions in the income multiplier, and highlight differences in capital, liquidity and labor market constraints. #MacroEffects
    • DFID (2011) reports that there is substantial evidence that cash transfers can reduce inequality, boost movement out of poverty for working age populations, and lead to sizable gains in access to health and education indicators (with less marked success in the final outcomes of these two sectors). The authors report indicative and deterministic factors showing that cash transfers can improve household productivity, income generation, gender equality, empowerment of the poor, and local market development. They also report that there is little evidence of negative labor market effects and negative effects on fertility. While acknowledging the limited evidence on aggregate growth, the authors suggest that cash transfers can lead to long term growth through improvements in human capital. #EconomicEffects #HealthEffects #EducationalEffects #MacroEffects #LaborMarketEffects
    • A study by Imbens, Rubin, Sacerdote (2001) assessing lottery winners in Massachusetts in the 1980s finds that unearned income reduces labor earnings, with a marginal propensity to consume leisure of approximately 11 percent, and with larger effects for individuals between 55 and 65 years old. The savings rate for unearned income is about 16 percent for those who received half their income and increases with the proportion of the income received. #EconomicEffects

    Conclusion

    There is only a limited amount that studies on small-scale cash transfer interventions can tell us about UBI. However, one thing we can learn from these studies is that there is little empirical evidence to suggest the materialization of the harms or dangers usually associated with cash transfers. In other words, we don’t see entire populations quitting work or using the cash transfers on temptation goods. This possibly provides a reason for sustained interest in basic income research.

    Based on our review of the literature, it would be useful for future research efforts to examine labor effects and community effects more closely. Most of the CCT and CT studies conduct sampling on the individual level, and it is hard to find studies which report on community effects and changes in interpersonal relationships. We would also like to see more post-intervention studies about what happens to recipients at the end of the disbursement periods, and in particular whether the changes in their behavior are sustained. We’re also looking forward to seeing more papers on the long-term impacts of cash transfers — on the effects on distribution of wealth, and intergenerational effects in households, for example. We want to note our appreciation for the papers on the study in Kenya, which cover a whole gamut of effects–the 2018 paper examines spillover effects, which is both rare and important in this discourse.

    Finally, we see a need for pilots to be carried out on a much larger scale, in order to get at the population-wide effects of a UBI. A large-scale pilot will be useful in helping to generate empirical macroeconomic analysis, as well as reveal new effects at the micro- and meso- economic levels. After all, a UBI is not just a research study, but an institution which is well worth our consideration. What would it look like to implement such an institution?

    Thank you to Karla Ganley, Lisa Hattori, Mario Saraiva, Claudia Vargas, Ivana Vasic-Lalovic, and Eirene Wang of Columbia SIPA for their help compiling these materials. We’d also like to acknowledge the World Bank Development Impact blog for inspiring the format of this post.