Hope Tax Credit, Independent Single Filers at Phase Start

Bulman and Hoxby (2015) estimate that a dollar decrease in income leads to $0.116 fewer tax credits claimed by the household. That $0.116 is the direct cost of the program. The second stage regression from Bulman and Hoxby (2015) finds that, at the kink point, a dollar decrease in income increases college attendance 3 \cdot 10^{-6} percentage points. That increase in attendance results in $0.052 greater educational costs for the government. Hendren and Sprung-Keyser (2020) project out the impact those attendance changes have on changes in income. Then the authors use a tax and transfer rate of 19.6% to determine the impact on the government’s budget. They find that government revenue rises by $0.148. Putting these components together, the total net cost of the policy is $0.036.

The MVPF of this policy is 18.86. The 95% confidence interval is [-2.87,\infty]. For context, if the Hope credit had no effect on college attendance, we would expect the MVPF of this policy to be around 1 (the HOPE credit would simply be a tax cut that induced a muted behavioral response). As these calculations show, the observed causal effect of the HOPE credit policy is a sufficiently large MVPF estimate that deviates meaningfully from 1. That said, the confidence interval around the estimate is quite large and so we cannot rule out an infinite MVPF or an MVPF of 0. In other words, this means that one cannot statistically rule out that the HOPE credit either pays for itself or provides no benefit to the beneficiaries, and suggests the value of further work to increase the statistical precision of the impact of the HOPE credit.