Income Maintenance Experiment in Seattle and Denver

The Seattle-Denver Income Maintenance Experiment was a randomized control trial that provided a lump-sum cash transfers to families in place of traditional cash welfare and other government transfer programs. On average the experiment provided payments to families between $17,600 and $25,900, but individuals were taxed at rates of 50-80% on their earnings on top of these transfers. Price and Song (2018) study the impact of these transfers and its associated high marginal tax rates.

During the five-year period of the experiment, individuals face no other marginal tax rate (e.g. no federal income tax rate). The authors find that a negative income tax (NIT) led to long run earnings declines (largely driven by earlier retirement) and slight negative impacts on children’s earnings. Hendren and Sprung-Keyser (2020) use these short- and long-run estimates from Price and Song (2018) to form the MVPF.

MVPF SUMMARY

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The MVPF calculations involve estimates on the impacts of both parents and children. Price and Song (2018) estimate that the NIT reduced labor earnings of the parents and also led to a slight decrease in child earnings in adulthood. On net, Hendren and Sprung-Keyser (2020) estimate that every $1 of government spending costs on net $3.7 due to reductions in earnings of adults and children in adulthood. This implies an MVPF of $1 / $3.7 = 0.27, with a 95% CI of [0.11, 2.13].

The estimates used to calculate this MVPF may have been updated in a more recent working or published version of the paper.