Introduction of Food Stamps
Introduction
The Supplemental Nutrition Assistance Program (SNAP), which is formerly known as Food Stamps, is an in-kind transfer program that provides low-income families with vouchers for food purchases at grocery stores. With an annual budget of $65B in 2018, it plays a significant role in the social safety net in the United States. For example, SNAP is the second largest child anti-poverty program in the US.
Bailey et al. (2023) evaluate the long-run impacts of the introduction of the Food Stamps. Food Stamps started in 8 counties in 1961 and eventually covered all US counties in 1974. The authors use the staggered rollout of Food Stamps across counties to estimate the impact of childhood exposure to Food Stamps on long-run adult outcomes such as educational attainment, longevity, and the likelihood of being incarcerated. The authors use these estimates to compute the MVPF of Food Stamp provision to families with children aged 0-5. This paper builds on a body of literature, beginning with Hoynes and Schanzenbach (2009), which uses the introduction of food stamps to examine the various impacts of the program. This research has examined the impact of food stamps on short-run outcomes such as parental earnings (Hoynes and Schanzenbach (2012)) and long-run outcomes such as health and economic self-sufficiency (Hoynes et al. ( 2016). Bailey et al. (2020) combine their empirical estimates with the findings from this previous literature to construct an MVPF for the introduction of food stamps.
MVPF = 62.3
Net Cost
In calculating the net cost of Food Stamp spending, the authors use the causal estimates from their work to consider three sources of fiscal externalities for every $1 of initial spending.
First, there is reduced tax revenue due to reduced labor earnings among adult enrollees (parents). The authors draw upon existing work from Hoynes and Schanzenbach (2012) which found a negative (but statistically insignificant) effect of Food Stamp provision on earnings. For every dollar in reduced earnings, they estimate that the government lost 12.9 cents in reduced revenue. When scaling those effects per dollar of initial spending, they find this amounts to $0.16 reduction in revenue (or an additional $0.16 in net costs).
Second, there is increased tax revenue payments due to increases in earnings amongst those exposed to food stamps during childhood. The authors estimate the impact of food stamp exposure at ages 0-5 on lifetime earnings. They then apply a 12.9% tax and transfer rate to determine each dollar of initial Food Stamp expenditure generates $0.07 in extra tax revenue through this channel.
Finally, there is a reduction in government costs due to the effect of Food Stamps in reducing incarceration rates. For this, the authors use their estimate of a 0.5 percentage-point reduction in incarceration rates among children of enrollees. They combine this with an average annual incarceration cost of $31,978 (Federal Bureau of Prisons) to conclude that each dollar of Food Stamps saves the government $0.09 through this channel.
Combining these effects suggests that the total cost per $1 of upfront spending on Food Stamps is, in fact, $1. The reduction in revenue from reduced parental earnings is offset by increases in revenue due to greater child earnings and lower incarceration rates ($1+$0.16-$0.07-$0.09=$1).
Willingness to Pay
The authors consider three components in the willingness to pay for Food Stamp transfers.
First, there is a willingness to pay by the adults who receive the transfers. For this, the authors follow Whitmore (2002) and assume that each dollar of SNAP transfers is valued at 80 cents by the adults obtaining the transfer. (The intuition here is that in-kind transfers with restricted uses are valued by recipients at slightly less than $1 in benefits per $1 received.)
Second, there is the willingness to pay by the children due to the impact of Food Stamps on their lifetime after-tax income. For this calculation, the authors follow a calculation from Hendren and Sprung-Keyser (2020) to conclude that a dollar spent on SNAP generates 45 cents of willingness to pay by children due to increased lifetime earnings. This number comes from the discounted increase in post-tax earnings experienced by beneficiaries, since SNAP participation increases lifetime income. This calculation uses estimates of percentage gains in child earnings gains from Bailey et al. (2020) to project lifecycle earnings gains. Those percentage gains are translated into levels using parental earnings estimates from Hoynes et al. (2016) as well as an intergenerational elasticity.
Third, there is the willingness to pay by children for their increased longevity. For this, the authors start from their estimated effect of Food Stamps on longevity. In their preferred empirical specification, children exposed to the program between ages 0 and 5 experience an increase in life expectancy of 1.1 years. They combine this estimate with the value of a statistical life and the life expectancy of the median-age American to arrive at an implied value per life-year of $232,000. Therefore, the WTP of Food Stamp recipients due to increased longevity is 1.2*232 = $278,400, or $61 per initial dollar spent on transfers between ages 0 and 5.
Combining these three components, the willingness to pay is 0.45+0.8+61 = $62.25.
MVPF Summary
Combining the willingness to pay and net cost, MVPF is then 62.25. ($62.25/$1 = 62.25)
References
Bailey, Martha J., Hilary W. Hoynes, Maya Rossin-Slater, and Reed Walker (2023). “Is the social safety net a long-term investment? Large-scale evidence from the food stamps program.” The Review of Economic Studies 00, 1-40. https://doi.org/10.1093/restud/rdad063
Hendren, Nathaniel and Ben Sprung-Keyser (2020). “A Unified Welfare Analysis of Government Policies.” The Quarterly Journal of Economics, 135(3): 1209–1318. DOI: https://doi.org/10.1093/qje/qjaa006
Hoynes, Hilary, and Diane Whitmore Schanzenbach (2009). “Consumption responses to in-kind transfers: Evidence from the Introduction of the Food Stamp Program.” American Economic Journal: Applied Economics 1(4): 109-139. https://www.aeaweb.org/articles?id=10.1257/app.1.4.109
Hoynes, Hilary and Diane Whitmore Schanzenbach (2012). “Work Incentives and the Food Stamp Program,” Journal of Public Economics 96 (1-2): 151-162. https://doi.org/10.1016/j.jpubeco.2011.08.006
Hoynes, Hilary, Diane Whitmore Schanzenbach, and Douglas Almond (2016). “Long-Run Impacts of Childhood Access to the Safety Net,” American Economic Review 106 (4): 903–934. https://www.aeaweb.org/articles?id=10.1257/aer.20130375
Schanzenbach, Diane Whitmore (2002). “What are food stamps worth?” Princeton University Industrial Relations Section Working Paper #468 113. http://arks.princeton.edu/ark:/88435/dsp01z603qx42c
Policy Features
- Category
- In Kind Transfers
- Sub-Category
- Nutrition
- Beneficiary Type(s)
- Adults, Children and Youth, Children under five, Mothers and pregnant women, Parents
- Country of Implementation
- United States
- Year of Implementation
- 1961
- Empirical Method
- Difference in Differences
- Research Type
- Primary
- Peer Reviewed
- Yes
- MVPF Publication Link
- doi.org/10.1093/restud/rdad063