The Impact of Unconditional Cash Transfers on Consumption and Household Balance Sheets: Experimental Evidence from Two US States

Alexander Bartik (), Elizabeth Rhodes, David E. Broockman, Patrick K. Krause, Sarah Miller and Eva Vivalt

No 32784, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We provide new evidence on the causal effect of unearned income on consumption, balance sheets, and financial outcomes by exploiting an experiment that randomly assigned 1000 individuals to receive $1000 per month and 2000 individuals to receive $50 per month for three years. The transfer increased measured household expenditures by at least $300 per month. The spending impact is positive in most categories, and is largest for housing, food, and car expenses. The treatment increases housing unit and neighborhood mobility. We find noisily estimated modest positive effects on asset values, driven by financial assets, but these gains are offset by higher debt, resulting in a near-zero effect on net worth. The transfer increased self-reported financial health and credit scores but did not affect credit limits, delinquencies, utilization, bankruptcies, or foreclosures. Adjusting for underreporting, we estimate marginal propensities to consume non-durables between 0.44 and 0.55, durables and semi-durables between 0.21 and 0.26, and marginal propensities to de-lever of near zero. These results suggest that large temporary transfers increase short-term consumption and improve financial health but may not cause persistent improvements in the financial position of young, low-income households.

JEL-codes: D14 E21 G50 H53 (search for similar items in EconPapers)
Date: 2024-08
New Economics Papers: this item is included in nep-edu, nep-exp, nep-hea and nep-ure
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