In Simple Words
Transferring money through a specific bucket (like housing vouchers) causes leaks along the way: part of the money is lost because recipients value in-kind housing less than cash, and another part is lost because recipients work less, reducing their total earnings.
Chicago adults who would use an offered voucher
- Without voucher use
- Comparison annual earnings
- With voucher use
- About US$1,316 less annual earnings
Estimated voucher-use effect from randomized offers, among adults whose use was changed by the offer. Working-age, able-bodied adults initially in private housing; earnings are in 2007 dollars.
See source →Research question
Means-tested transfer programs suffer from efficiency losses when the cost to taxpayers exceeds the cash-equivalent value to recipients and creates secondary earnings reductions.
Participants
N = 42,358 working-age, able-bodied adults applying for housing vouchers; Chicago, Illinois.
Study Design
Welfare economic accounting comparing annual government program expenditures ($8,400 per voucher) against recipient equivalent variation ($6,860) and administrative earnings losses.
Results
Voucher usage reduces recipient annual earnings by $1,316, representing approximately 19 percent of the $6,860 recipient subsidy value, alongside a direct $1,540 gap between government outlay ($8,400) and equivalent variation ($6,860).
Takeaway
Balance the in-kind target efficiency of housing subsidies against the 19 percent earnings loss leak when deciding between targeted housing vouchers and direct cash transfers like the EITC.