Prior literature has established clear short- and long-run benefits of the Earned Income Tax Credit (EITC), but the mechanism behind these effects is unclear. This paper provides evidence that these benefits occur through increasing nondurable expenditures. I examine the impact of the EITC on the nondurable expenditures of single female headed households. Using longitudinal data with a dynamic difference-in-differences design and a pooled estimation model, I comprehensively study all EITC policy changes over time. This includes the 1975 introduction, a currently understudied aspect of the program. This paper additionally estimates the marginal propensity to consume out of transfer income, providing new evidence on the elasticity of household expenditures to a large lump-sum transfer. I find that an increase of $1 of EITC benefits leads to $0.39 more of food expenditures, significantly higher than the proportion of disposable income typically spent on food. This research strengthens the literature on how public assistance changes the spending decisions of low-income households and furthers the research on a population not typically the focus of the household finance literature.
with Marianne Bitler
Annual Review of Resource Economics (2019)
This review focuses on the health and nutrition impacts of food assistance programs. We focus particular attention on the United States, both because of the plethora of types of programs and associated variation and because spending on these programs is a large share of the nonmedical safety net there. We begin by reviewing the theoretical predictions concerning health and nutrition effects of these programs, also paying attention to potential mediators such as education and income. We then discuss program eligibility and size, both as caseload and in terms of spending. We next touch on identifying causal variation and opportunities for further research. The review concludes by discussing the existing literature in five broad areas: take-up and use of the programs; effects on nutrition and food consumption; other immediate effects on short-run health; impacts on other contemporaneous outcomes such as income and labor supply; and longer-run health and nutrition effects.
with Daniel Aaronson, Daniel Sullivan, and Luojia Hu
Chicago Fed Letter (2015)
This article discusses why changes in the composition of the labor force may have lowered the natural (or trend) rate of unemployment — the unemployment rate that would prevail in an economy making full use of its productive resources — to 5 percent or less. A lower natural rate may help explain why wage inflation and price inflation remain low despite actual unemployment recently reaching 5.5 percent — a figure only slightly above prominent estimates of the natural rate, such as that of the Congressional Budget Office (CBO). Demographic and other changes should continue to lower the natural rate for at least the remainder of the decade.
with Daniel Aaronson, Daniel Sullivan, and Luojia Hu
Economic Perspectives (2014)
The authors provide estimates of the long-run trend rate of labor force participation (LFP) based on data before the Great Recession (before 2008). Their models suggest that the actual LFP rate as of the third quarter of 2014 is 0.2 to 1.2 percentage points lower than what would have been expected before the recession started, with their preferred model estimating the gap at the high end of this range. Accounting for unemployment rates of recent years, their models for the trend LFP rate place the actual LFP rate between 0 and 0.8 percentage points below expectations, again with their preferred model estimating the gap at the high end. Their LFP results imply that the natural rate of unemployment may be lower than is often assumed (by as much as 0.6 percentage points since 2000) and that the long-run trend in payroll employment growth is expected to move substantially lower (to under 50,000 jobs per month) through 2020.
The Effect of Earned Income Tax Credit Receipt on High Frequency Expenditures
I examine how the Earned Income Tax Credit affects all nondurable expenditures, moving beyond only food expenditures. I use data with a monthly frequency, to better see expenditure patterns in the year following EITC receipt. Using the major expansion of the EITC in 2009, which increased the amount of benefits by $1025 for one demographic group only. This provides an ideal quasiexperimental setting to explore the effect of increasing the benefit amount for one group, with another unchanged, and very similar, comparison group. Using both a static and dynamic difference-in-differences design, I examine total nondurable expenditures, finding about an $86 increase in all nondurables, and then further decompose that category into key areas of spending. This includes grocery spending, where there is an increase of about $36, total food spending, with an increase of about $65.
Examining the Relationship Between Public Cash Transfer Programs and Asset Holdings
This research uses the Consumer Expenditure Survey to determine the impact of a large, public cash transfer program on non-housing wealth. The Earned Income Tax Credit is an ideal candidate to understand more about the relationship between asset holdings and government assistance programs because it is one of the few programs without an asset limit and because it targets low- and middle-income households. The Consumer Expenditure Survey provides quarterly data on outcomes such as savings, debt, and the total amount in a household's checking accounts.
Effects of the Safety Net on Spending and Well-being: The COVID-19 Crisis Response
with Marianne Bitler and Danea Horn
Determinants and Effects of WIC Rollout: Evidence from Newly Digitized Data from the National Archives
with Marianne Bitler, Danea Horn, Esra Kose, and Maria Fernanda Rosales-Rueda