Giving Poor People Money Is A Great Idea

Even as I’ve grown more appreciative of the virtues of market capitalism over the years, I’ve also become increasingly enthusiastic about the ability of the government to make the world a better place by giving money to poor people. You can do it unconditionally, or—mindful of impacts on incentives—you can do it through wage subsidies like the Earned Income Tax Credit.

Some new research from Hilary W. Hoynes, Douglas L. Miller, and David Simon finds evidence that beyond the obvious fact that people like money, giving money to low income families can do a great deal to help children:

Using tax-reform induced variation in the federal EITC, we examine the impact of the credit on infant health outcomes. We find that increased EITC income reduces the incidence of low birth weight and increases mean birth weight. For single low education (<= 12 years) mothers, a policy-induced treatment on the treated increase of $1000 in EITC income is associated with 6.7 to 10.8% reduction in the low birth weight rate, with larger impacts for births to African American mothers. These impacts are evident with difference-in-difference models and event study analyses. Our results suggest that part of the mechanism for this improvement in birth outcomes is the result of more prenatal care and less negative health behaviors (smoking).

That’s to say that in addition to directly assisting the beneficiaries of the program, more generous EITC seems to be a good way of bolstering the human capital of the next generation. As we’ve seen, very wealthy people tend to spend their money in rather frivolous and extravagant ways not because they’re bad people but simply because there are only so many high-value things to buy in the world. Poor families, by contrast, seem to spend an extra marginal dollar in very valuable ways including on things that substantially improve infant health.