1-in-7 Americans received benefits from the Supplemental Nutrition Assistance Program in 2011, an all-time high. We analyze changes in program enrollment over the past two decades, quantifying the contributions of unemployment and state policy changes. Using instrumental variables to address measurement error, we estimate that a one percentage point increase in unemployment raises enrollment by 15 percent. Unemployment explains most of the decrease in enrollment in the late 1990s, state policy changes explain more of the increase in enrollment in the early 2000s, and unemployment explains most of the increase in enrollment in the aftermath of the Great Recession.
We study the spending of unemployment insurance (UI) recipients using de-identified data from nearly 200,000 bank accounts. Spending on nondurables falls by 6% at the onset of unemployment, is largely stable during UI receipt, and then falls by an additional 13% at benefit exhaustion. Using cross-state variation, we show that spending responds to the level of UI benefits and drops exactly when UI benefits are exhausted.
We explore the positive and normative implications of the drop in spending at UI exhaustion. From a positive perspective, our finding that spending responds to a large and predictable income drop sharpens an existing puzzle of the empirical excess sensitivity of spending to income, which is at odds with predictions from rational models. A model which includes hand-to-mouth consumers (Campbell and Mankiw 1989) as well as a model of inattentive consumers (Gabaix 2016) are able to generate a drop at exhaustion. In normative terms, because spending is so much lower after UI exhaustion than during UI receipt, the consumption-smoothing gains from extending UI benefits are at least three times as big as the gains from raising the level of UI benefits.
This paper empirically and theoretically analyzes the effect of debt reductions that reduce long-term but not short-term obligations. Isolating the effect of future obligations allows us to test alternative explanations for borrower default decisions and to analyze the consumption response to mortgage principal reduction for underwater borrowers. Our empirical analysis uses regression discontinuity and difference-in-differences research designs on de-identified bank account and credit bureau records from participants in the US. government’s Home Affordable Modification Program. We find that mortgage principal reductions worth an average of $70,000 have no impact on default or consumption for borrowers who remain underwater. Our results are sufficiently precise to rule out economically meaningful effects. We develop a quantitative life-cycle model that clarifies that borrowers’ short-term constraints govern their response to long-term debt obligations. When defaulting imposes utility costs in the short-term, default is driven by cash-flow shocks such as unemployment rather than by future debt burdens. When principal reductions do not push borrowers sufficiently above water so as to relax collateral constraints, consumption is unaffected because borrowers are unable to monetize increased housing wealth. Collateral constraints drive a wedge between an underwater borrower’s marginal propensity to consume out of cash and their marginal propensity to consume out of housing wealth. Our results help explain why policies that lowered current mortgage payments were more effective than principal reductions at stemming foreclosures and increasing demand during the Great Recession.
The Regression Kink (RK) design is an increasingly popular empirical method for estimating causal effects of policies, such as the e ect of unemployment benefits on unemployment duration. Using simulation studies based on data from existing RK designs, we empirically document that the statistical significance of RK estimators based on conventional standard errors can be spurious. In the simulations, false positives arise as a consequence of non- linearities in the underlying relationship between the outcome and the assignment variable, confirming concerns about the misspecification bias of discontinuity estimators pointed out by Calonico et al. (2014b). As a complement to standard RK inference, we propose that researchers construct a distribution of placebo estimates in regions with and without a policy kink and use this distribution to gauge statistical significance. Under the assumption that the location of the kink point is random, this permutation test has exact size in finite samples for testing a sharp null hypothesis of no e ect of the policy on the outcome. We implement simulation studies based on existing RK applications that estimate the effect of unemployment benefits on unemployment duration and show that our permutation test as well as inference procedures proposed by Calonico et al. (2014b) improve upon the size of standard approaches, while having suffcient power to detect an effect of unemployment benefits on unemployment duration.
U.S. housing voucher holders pay their landlord a fraction of household income and the government pays the rest, up to a rent ceiling. We study how two types of changes to the rent ceiling affect landlords and tenants. A policy that makes vouchers more generous across a metro area benefits landlords through increased rents, with minimal impact on neighborhood and unit quality. A second policy that indexes rent ceilings to neighborhood rents leads voucher holders to move to higher-quality neighborhoods with lower crime, poverty and unemployment.
The past thirty years have seen a dramatic decrease in the rate of income convergence across states and in population flows to wealthy places. These changes coincide with (1) an increase in housing prices in productive areas, (2) a divergence in the skill-specific real returns to living in productive places, (3) a redirection of low-skilled migration and (4) diminished human capital convergence due to migration. We develop a model where falling housing supply elasticity and endogenous labor mobility generates these patterns. Using a new panel measure of housing supply regulations, we demonstrate the importance of this channel. Income convergence continues in less-regulated places, while it has stopped in more-regulated places.
In April 1993, Georgia instituted new parole guidelines that led to longer prison terms for parole-eligible offenders. This paper shows that an extra year of prison reduces the three-year recidivism rate by 6 percentage points (14%) and that the benefits of
preventing this crime are likely outweighed by the costs of this additional incarceration. I develop a new econometric framework to jointly estimate the effects of rehabilitation, incapacitation, and aging in reducing crime. Estimates of incapacitation effects using existing methodologies are biased upward by at least a factor of 2 because they focus on a short time horizon.