Seminario CEDE - Anders Fremstad

Economists are not well-known for agreeing with each other, but in the 1960s an unusual consensus emerged around anti-poverty programs in the United States. Utilitarians and Austrians joined Post Keynesian, feminist, and institutionalist economists to speak in one voice about the benefits of a negative income tax (NIT). Several economists won the attention of Sargent Shriver, the leader of President Johnson’s War on Poverty, and were given over 100 million dollars to experiment on America’s poor. What happened next should have become a champagne moment for experimental economics. Instead, the NIT experiments were prematurely ended and NIT proposals were abandoned. We argue that economists bear some responsibility for the perceived failure of the NIT experiments, because their theoretical framework emphasized labor supply and their empirical analysis focused on statistical significance. We re-analyze archival data from the largest, most comprehensive experiments, the Seattle and Denver Income Maintenance Experiments (SIME/DIME). Evidence from two-way fixed effect regressions shows that the NIT experiments had little effect on families’ employment and work hours. Moreover, the NIT sharply increased wage rates, which more than offset their shorter work hours. The most comprehensive NIT experiment in US history shows that the policy helped impoverished families by substantially increasing their wages, incomes, and capabilities.