Tuesday, October 8, 2024
Deshpande Presents The Social Safety Net On Human Capital Investment Today At NYU
Manasi Deshpande (Chicago) presents The (Lack of) Anticipatory Effects of the Social Safety Net on Human Capital Investment (with Rebecca Dizon-Ross (Chicago; Google Scholar)) at NYU today as part of its Tax Policy and Public Finance Colloquium hosted by Daniel Shaviro:
Most parents whose children receive Supplemental Security Income (SSI) benefits overestimate the likelihood that their child will receive SSI benefits in adulthood; further, reducing parents’ expectations that children will receive benefits in adulthood does not increase investments in children’s human capital.
Research has shown that social safety net programs improve children’s short- and long-term outcomes by providing financial resources to families in need. However, what if parents anticipate that their children will retain government benefits into adulthood? Will those parents decrease their investment in their children’s education and other development opportunities?
A simple economic model suggests some answers to these questions, revealing that the anticipation of benefits in adulthood decreases human capital investment on two counts: (a) income effects—parents invest less in human capital because they do not expect their child to “need” money from working in the future; and (b) substitution effects—parents invest less in human capital because, due to the phase-out rules for transfer programs, a child’s adult benefits will be reduced if they work as an adult.
Several theoretical models capture these discouragement effects, including those modeling the effects of a universal basic income, while empirical work has revealed that human capital investments are responsive to many types of dynamic or anticipatory considerations, including life expectancy and adult earnings returns. Further, while direct evidence on dynamic discouragement effects of the social safety net is limited, experts on child development think this effect is large. However, is there more to the story? Might there be reasons that the anticipation of future benefits might not decrease human capital investment? Parents, for example, may be constrained to invest less than they would like by limited money, time, or bandwidth, so changing expectations alone would not increase investments without accompanying changes to these constraints. Also, parents may make decisions about human capital investment based on non-financial objectives.
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https://taxprof.typepad.com/taxprof_blog/2024/10/deshpande-the-social-safety-net-on-human-capital-investment.html