Negative Income Tax Experiments Research Articles

A Truly Missed Opportunity: The Political Context and Impact of the Basic Income Experiment in Finland

Finland conducted the first nationwide field experiment with partial basic income between 2017 and 2018. The experiment and its results were widely reported in international media and featured in political debates across the globe. Domestically, the experiment had an impact on social policy debates but no impact on social policy. For example, it did not feature in the Social Security 2030 project or in the work of the Social Security Reform Committee (2020–2027). The research setting for the experiment was compromised from the beginning due to political reasons; but the scientific power was further undermined by a new sanctioning model, which was implemented in 2018 at the beginning of the second year of the basic income experiment. The new Government taking office in 2019 promised to continue with a negative income tax experiment; however, no such experiment was conducted. The article will unpack these developments in Finland and discuss possible explanations for denouncing basic income as a policy idea.

Are There Treatment Duration Differences in the Seattle and Denver Income Maintenance Experiments?

Abstract This paper re-examines the labor supply responses in the Seattle and Denver Income Maintenance Experiments (SIME/DIME). Specifically, the original experimental results show a significantly larger labor supply response for men and women from dual-headed households in the five-year Negative Income Tax (NIT) treatment relative to those in the three-year NIT treatment. Although typically thought of only as an NIT experiment, the SIME/DIME also included a job training experiment that enrolled roughly 60 percent of households, including both NIT treatment and control households. The original empirical specification imposed strong assumptions on the treatment response to the job training experiment in order to increase the precision of the estimated parameters. Once these assumptions are relaxed, the labor supply differences between men in the three- and five-year NIT treatments fall by over 50 percent in magnitude and become statistically insignificant. The analogous differences for women are almost entirely explained by these specification changes. Whereas the original findings of the SIME/DIME were inconsistent with the standard life-cycle labor supply model, the results of the re-analysis are mostly consistent with the model.

A Plea for the Use of Laboratory Experiments in Basic Income Research

We agree with the other participants in this debate that an experimental approach makes a significant contribution to our understanding of universal basic income (UBI) schemes, as there is a limit to what we can learn from surveys, simulations or studying existing welfare policies that only marginally resemble a UBI. However, we differ from others advocating the use of experiments in terms of the specific design of a UBI experiment. In particular, we want to urge a note of caution against conducting large-scale social or field experiments (along the lines of the famous negative income tax (NIT) experiments carried out in the US and Canada in the 1970s) advanced in recent years by Loek Groot (2004; 2006), Rafael Pinilla (2006), and many others. We think there are two distinct, if related, reasons why one might take a sceptical attitude towards field experiments in this particular context. First, field

The Bottom Line in a Basic Income Experiment

A basic income (BI) experiment is worth doing if it focuses on the right question. Some of the problems with the US negative income tax (NIT) experiments of the 1970s stemmed from a focus on the wrong question – focusing on the side effects rather the effects of the policy in question. A European BI experiment should focus on the question of policy effectiveness. The question of policy effectiveness should be formulated as follows: what policy (BI, the current system, or any other alternatives to be tested) produces the greatest increase in welfare for the poor (or the greatest decrease in poverty) per Euro of cost (both in terms of tax cost and efficiency loss)? Effectiveness is not the only important concern in assessing policy alternatives, but it is a critically important concern that anyone who is interested in the issue should consider. BI supporters argue – from theory – that BI is the most efficient and effective way to improve the welfare of the poor. A BI experiment can shed light on whether that theory is correct, and supporters and opponents alike agree that policy effectiveness is an important factor in determining the relative merits of policy alternatives. The US experiments tested NIT, which is no longer the focus of the guaranteed income debate. However, BI does not lend itself to easy testing as

A failure to communicate: what (if anything) can we learn from the negative income tax experiments?

The U.S. and Canadian governments conducted five negative income tax experiments between 1968 and 1980. The labor market findings of these experiments were an advance for understanding the effects of a basic income guarantee, but their conclusiveness is often overstated. A review of nonacademic articles on the experiments reveals poor understanding of the results. One often overlooked cause of this misinterpretation was the failure of researchers to make clear that the experiments could not estimate the demand response and therefore could not estimate the market response to the program. Although the evidence does not amount to an overwhelming case either for or against the basic income guarantee, some important conclusions can be drawn, if they are drawn carefully.

Effects on the AFDC-basic caseload of providing welfare to two-parent families

This article describes caseload models that were used to provide new information on the effects of the Aid to Families with Dependent Children-Unemployed Parents (AFDC-UP) program, which offers cash assistance to poor, two-parent families. In two states that started or stopped providing AFDC-UP benefits during the period when the program was optional, the caseload of the AFDC-U Basic program (which primarily serves single-parent families) was modeled to examine the relationship between the availability of UP benefits and the number of families receiving AFDC-Basic benefits. In contrast to what might have been predicted based on the findings from the negative income tax experiments, in these states the provision of AFDC-UP benefits was associated with decreased growth in the AFDC-Basic caseload.

Comment on Hum and Simpson

Previous article No AccessComment on Hum and SimpsonGary M. Anderson, and Walter BlockGary M. Anderson Search for more articles by this author , and Walter Block Search for more articles by this author PDFPDF PLUS Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinkedInRedditEmail SectionsMoreDetailsFiguresReferencesCited by Journal of Labor Economics Volume 11, Number 1, Part 2Jan., 1993Part 2: U.S. and Canadian Income Maintenance Programs Published for the Society of Labor Economists, Economics Research Center/ NORC Article DOIhttps://doi.org/10.1086/298340 Citations: 2Citations are reported from Crossref Copyright 1993 The University of ChicagoPDF download Crossref reports the following articles citing this article:Claire Hovenga, Devaja Naik, Walter E. Block The Detrimental Side Effects of Minimum Wage Laws, Business and Society Review 118, no.44 (Dec 2013): 463–487.https://doi.org/10.1111/basr.12018Karl Widerquist A failure to communicate: what (if anything) can we learn from the negative income tax experiments?, The Journal of Socio-Economics 34, no.11 (Feb 2005): 49–81.https://doi.org/10.1016/j.socec.2004.09.050

Public Transfers: Safety Net or Inducement into Poverty?

A number of scholars contend that recent increases in economic dependency and poverty htave been stimulated by overly generous public assistance. Cash and noncash transfers and the eligibility guidelines that govern their distribution purportedly discourage employment antd encourage the rise of female-headed families. These arguments and alternative hypotheses are examined through time series analyses. The restults are mixed. On the one hand, the combined package of cash and noncash transfers is modestly related to the rise of female headship and economic dependency and more strongly related to declines in the labor force participation of young nonwhite males. On tle othter 1nhand, cash transfers reduce poverty. Though the current welare system is fraughlt with a nttumber of shortcomings, we find that culture-of-poverty explanations of post-1970 increases in econtomic dependency and poverty are not very powerful. A more comprehensive theory is called for. Such a theory needs to explain how structural changes in our econtomy are affecting economic opportunity. It has long been argued that poverty is better understood as a cultural rather than an economic problem (see Coser's [19651 discussion of Simmel [1908] or Harrington [1984:144]). Banfield (1968) and Gilder (1980) can fairly be characterized as the cornerstones of recent contributions to this line of reasoning. According to Gilder (1980:12), real poverty is less a state of income than a state of mind. That is, the seed of poverty is a fatalistic mind-set wherein people give up on themselves as providers for their families. The availability of transfers that approach or exceed the value of earnings that many individuals are able to secure in the labor market reinforces such fatalism. The poor person becomes economically insignificant, so he or she does not have an important role in providing for themselves or their family. In this way poverty is sustained by the unilateral transfer of wealth from the state to the poor. This stigmatizes the poor in the eyes of the public. More importantly, the poor come to accept the stigma and view themselves as best suited to a life of welfare-dependency. They leam to view the labor market as a hostile environment in which they are more likely to fail than succeed. Welfare softens the hardship of not achieving economic self-sufficiency and thereby reinforces the motivation to minimize contact with the labor market. In addition, poor women with children can be denied certain benefits if they have an employed spouse. Thus, welfare discourages two-parent families and labor force participation among the poor. Consequently, economic dependency, or latent *1 would like to thank Elwood Carlson, Beth Ghiloni, Darla Ladkau, Bruce Mayhew, Miller McPherson, Patrick Nolan, Ken Shin, John Skvoretz, Shelley Smith, Lynn Smith-Lovin, Lala Steelman, Robert Stewart, Donald Tomaskovic-Devey, and the anonymous reviewers of this article for their criticisms and assistance. Address correspondence to the author, Department of Sociology, University of South Carolina, Columbia, SC 29208. 0 The University of North Carolina Press Social Forces, March 1990, 68(3):813-834 This content downloaded from 207.46.13.111 on Mon, 08 Aug 2016 04:34:30 UTC All use subject to http://about.jstor.org/terms 814 / Social Forces 68:3, March 1990 poxverty to use Murray's (1984) term, and the official rate of poverty are pushed ulp.? Many scholars reject these arguments as ideologically inspired attempts to justify a hands off governmental policy toward the poor (e.g., Harrington 1984; Piven & Cloward 1982). Indeed, much of the research literature fails to support the contention that welfare has a largely pernicious impact on the poor. For instance, the review article by Danziger, Haveman, and Plotnick (1981) and recent collections by Danziger and Weinberg (1986) and Tomaskovic-Devey (1988a) point to a wide array of evidence that suggests that public transfers, despite their many shortcomings, improve the quality of life of the poor. But the culture-of-poverty perspective is not without empirical support. Murray (1984) compiles a great deal of descriptive data that lend themselves to a culture-of-poverty interpretation. Numerous analyses of the negative income tax experiment also suggest the relevance of the culture-of-poverty critique of the welfare state (e.g., Robins 1985). In this article, we propose a model formulated from contemporary contributions to the culture-of-poverty school and alternative arguments put forth by a number of researchers. The model is examined empirically in an effort to discern the merits of conflicting positions in the welfare/poverty debate. Determinants of Family Structure, Work-effort, Economic Dependency, and

A Nonparametric Approach to the Truncated Regression Problem

Abstract A description is given of a new method of estimating the regression parameters in the linear regression model from data where the dependent variable is subject to truncation. The residual distribution is allowed to be unspecified. The method is iterative and involves estimation of the residual distribution under the truncated sampling scheme. The technique can be interpreted as an iterative bias adjustment of the observations in order to correct the regression relationship in the sampled population to match that of the model. A simulation study compares the performance of various estimators, including one suggested by Bhattacharya, Chernoff, and Yang (1983). This truncation regression problem arises in many contexts of scientific and social research. In economics Tobin (1958) analyzed household expenditure on durable goods using a regression model that took account of the fact that the expenditure is always nonnegative. A more general situation was studied by Hausman and Wise (1976, 1977) in connection with negative income-tax experiments. Another example concerning the schooling and earnings of low achievers was studied by Hansen, Weisbrod, and Scanlon (1970). There is also a controversy in astronomy involving Hubble's law and Segal's chronometric theory (Nicoll and Segal 1982; Turner 1979). Both theories predict a straight line relating the negative log of luminosity and the log of velocity as measured by red shift for celestial objects. The problem is complicated by the fact that objects of low luminosity are not visible, and hence all data relating to them are unobserved. Holgate (1965) described a biological example. A truncated linear regression model is defined as y = x T β + e, where x is a vector of covariates, β is the vector of parameter of interest, and e is independent of x with mean 0 and cumulative distribution F. The datum (x, y) is observed only if y ≤ y 0. The truncation point y 0 is known. Based on n independent observations (x i , y i ) with yi ≤ y 0, it is desired to estimate β and F. Note that this differs from the censored regression model where data (x, y) with y > y 0 is observed but with the y value set to y 0. The procedures described in the article are easily extended to truncation from below and the situation where the truncation points vary across observations. It is straightforward to see that the ordinary least squares estimate of β is inconsistent. A common method of dealing with this problem is to assume that the error distribution F is Gaussian and proceed with standard parametric methods. In many applications this assumption may not be reasonable. Hence there is interest in developing nonparametric methods of estimation that do not rely on assumptions about F. In this article a new approach for estimating β is introduced. The method allows the error distribution F to be arbitrary and is general enough to handle multiple linear regression. The rank-based method of Bhattacharya et al. (1983), which was designed for simple linear regression, is compared with the proposed method using a simulation study. The new approach appears to give estimators with good bias and efficiency properties in a wide variety of situations.

A Comparison of the Labor Supply Findings from the Four Negative Income Tax Experiments

Between 1968 and 1982, the United States federal government sponsored four negative income tax experiments. This paper provides a set of consensus estimates of the labor supply responses to these experiments. It is found that despite the wide range of treatments and evaluation methodologies, the results are remarkably consistent. On average, husbands reduced labor supply by about the equivalent of two weeks of full-time employment. Wives and single female heads reduced labor supply by about the equivalent of three weeks of full-time employment. Youth reduced labor supply by about the equivalent of four weeks of full-time employment. Estimated income and substitution effects are quite similar to those obtained from nonexperimental studies.

Negative Income Tax

The general purpose of the four negative income tax (NIT) experiments was to evaluate the impact of a guaranteed income on labor participation. Beyond this general objective, certain subobjectives can be identified, three of which define the purpose of this analysis. The first is to determine what effect an income maintenance experiment program can have on the health and educational status of children from low-income families, the second is to examine the long-range effects of such a program, and the third is to complete a policy analysis using these results to consider the relative effectiveness of service programs and income maintenance programs in promoting child development and stability. The results show that the NIT experiments were effective in reducing a child's risk of being at poverty. The implications of this are discussed from several policy perspectives.

Inappropriate Comparisons as a Basis for Policy: Two Recent Examples from the Social Experiments

ABSTRACTThis paper examines the problem of inappropriate comparisons in evaluating social programs and the erroneous policy conclusions which can be derived from such comparisons. The paper examines two cases from the United States of America which fail to meet the criterion that comparison groups (if necessary after statistical adjustment) should be identical in all essential respects except in their exposure to the program. In the first of the two cases, involving the measurement of work-effort reduction in negative income tax (NIT) experiments, the inappropriate comparison was made in conducting a statistical analysis of program effects. In the second case, involving the analysis of changes in housing consumption in a housing allowance experiment, the statistical analysis of program effects appears valid, but the correctly measured program outcomes were themselves inappropriately used by policy-makers in drawing policy inferences. The conclusion draws out major lessons for policy analysis and policy-making.

New evidence on the relationship between mother's education and children's cognitive skills

In a sample of low-income black families, the number of years of schooling completed by mothers is found to be positively related to the cognitive skills of their children. Moreover, this relationship at least partly reflects environmental influences such as the quality of care that mothers provide to their children. The data base for the analysis was generated by the Gary Negative Income Tax Experiment.

The Counseling and Training Subsidy Treatments

The Seattle and Denver Income Maintenance Experiments were the only negative income tax experiments to test the efficacy of counseling and training subsidies in limiting the expected program-induced reductions in work effort. The program had two components: free counseling services and a program of subsidies for the direct costs of education and training. Three levels of experimental treatment were used. All experimental subjects were eligible for free counseling, and some were also eligible for an educational subsidy at the rate of 50 or 100 percent of direct costs incurred. Participation in all aspects of the program were voluntary, and it varied with the characteristics of individuals as well as the particular treatment. The training subsidies did induce increased school attendance, and both counseling and training affected labor supply. However, no subsequent effects of increased human capital have been found. Definitive statements about the final effects of the program must await analysis of additional data, but the results presented here suggest that the treatments had at most an modest impact.

Jobs, Cash Transfers and Marital Instability: A Review and Synthesis of the Evidence

Expanding welfare benefits to include two-parent families has long been considered an option for a public policy designed to strengthen family units. The negative income tax experiments employed this option, and it was found that the experimental group experienced 50 percent higher marital instability than the control group that was eligible for the current set of income-maintenance programs-AFDC and Food Stamps. Marital instability increased even when an experimental plan was no more generous than AFDC for the splitting wife. The conclusion must be either that because of differences in information, stigma, or transaction costs, the experiments produced more powerful independence effects than an equivalent amount of AFDC, or that receiving NIT payments somehow reduced the attractiveness of the married state by calling into question the success of the husband as provider. These findings suggest that, if strengthening marriages is a public-policy objective, two-parent families would be better aided by wage subsidies that reduce the unemployment of family heads and raise the earnings of the family's working members.

The Labor Supply Response in the Gary Experiment

The results of the Gary Negative Income Tax Experiment show significant work disincentives of 3 to 6 percent for husbands, 26 to 30 percent for female heads, but none for wives. The response of husbands is similar to those in other experiments. The response of female heads is somewhat larger than that in Seattle-Denver, the only other experiment reporting female-head results, because of a larger guarantee effect in Gary. The response of wives is very dissimilar to that in the other experiments, possibly because the Gary labor market offers few part-time possibilities for married women. In general, tax effects are much weaker than guarantee effects, which may also be a result of the steel-dominated, highly structured local labor market.

The Effects of a Negative Income Tax on School Performance: Results of an Experiment

This paper analyzes the impact of a negative income tax experiment on the school performance of children in grades 4 through 10. The results indicate that the experimental program led to an increase in the average reading achievement of children in grades 4 through 6. This improved performance can be explained at least in part by the effect of the program on family income. No beneficial effects of the NIT program were observed for older children.

Reforming Public Welfare: A Critique of the Negative Income Tax Experiment.

Reforming Public Welfare: A Critique of the Negative Income Tax Experiment.

Reforming Public Welfare: A Critique of the Negative Income Tax Experiment. By Peter H. Rossi and Katharine C. Lyall. New York: Russell Sage Foundation, 1976. 197 pp. $10.00

Reforming Public Welfare: A Critique of the Negative Income Tax Experiment. By Peter H. Rossi and Katharine C. Lyall. New York: Russell Sage Foundation, 1976. 197 pp. $10.00

The Effect of Taxation on Labor Supply: Evaluating the Gary Negative Income Tax Experiment

A model of labor supply is formulated which takes explicit account of nonlinearities in the budget set which arise because the net, after-tax wage depends on hours worked. These nonlinearities may lead to a convex budget set due to the effect of progressive marginal tax rates, or they may lead to a nonconvex budget set due to the effect of government transfer programs such as AFDC or a negative income tax. The nonlinearities affect both the marginal wage and the virtual nonlabor income which the individual faces. The model is estimated on a sample of prime-age males from the Gary negative income tax experiment.