In Simple Words
When a household already receives welfare benefits that phase out with higher earnings, adding a housing subsidy changes their tax schedule less dramatically than it does for a household receiving no initial welfare. Because their effective take-home pay was already reduced by welfare phase-outs, the additional disincentive from the housing voucher has a smaller marginal impact on their choice to work.
Voucher-use effects by prior public assistance
- No assistance at baseline
- 6.0 percentage points less employed
- Public assistance at baseline
- 2.5 percentage points less employed
Quarterly employment effects of voucher use in 1997–2005. The subgroup difference was marginally significant, p = 0.099; overlapping program rules are a possible explanation.
See source →Research question
Combining multiple means-tested welfare benefits creates complex overlapping marginal tax rates, altering the effective work disincentive of adding a housing voucher.
Participants
N = 42,358 total household heads (25,317 receiving public assistance at baseline, 17,041 not receiving public assistance at baseline); low-income, working-age, able-bodied adults, Chicago, Illinois.
Study Design
Instrumental Variables 2SLS regression comparing lottery treatment and control groups stratified by baseline public assistance receipt.
Results
Voucher usage reduced employment by 6.0 percentage points (9 percent of control mean) among households not receiving public assistance at baseline, compared to only 2.5 percentage points (4 percent of control mean) among households receiving public assistance at baseline (p = 0.099).
Takeaway
Account for overlapping welfare program phase-outs when calculating effective marginal tax rates to accurately predict behavioral responses to new housing subsidies.
Source and citation
See source →Read alongside the research
Plain-English glossary
Original explanations, informed by the references below. Examples are illustrations, not data from the studies above. The research text stays unchanged.
- Baseline
The starting measurements in a study. Researchers use these to compare what participants were like at the start with what happens later.
ExampleBefore a training programme starts, researchers measure workers’ earnings. That first measurement is the baseline.
GET-IT glossary · Baseline characteristics ↗Read more about baseline →- Percentage points
The difference between two percentages.
ExampleA rise from 40% to 50% is 10 percentage points. Relative to the starting value, that is a 25% increase.
Office for National Statistics · Percentages ↗Read more about percentage points →