THE WELFARE COST OF THE UNDERGROUND ECONOMY

This paper estimates the welfare cost of taxes that create an incentive for resources to flow to the underground, or untaxed, sector in the United States. Using a general equilibrium model of the American economy, the welfare cost is found to be large and growing in absolute and relative terms over time. In 1980 the welfare cost may be as much as $220 billion, or over 9 percent of output; even conservative estimates place the loss at nearly $100 billion. It also is found that small reductions in tax rates substantially reduce the welfare cost.     

APRIL 15 SYNDROME

In tax year 1988, delaying filing income tax returns cost the 73.2 million taxpayers claiming refunds nearly one billion dollars of interest. "Impatient" tax filers, who mail in their tax payments before the filing deadline, passed up $46 million in interest.
We develop a model of tax filing based on stochastic opportunity cost, and then investigate whether filing times are consistent with that model. We find some evidence for this because, ceteris paribus, higher refunds are associated with earlier filing and complex returns are associated with later filing, as are higher incomes (as a proxy for higher costs of time).     

Making Child Care "Affordable" in the United States

Two alternative federally financed plans are presented as modelsfor a program which would make child care of acceptable quality"affordable" for millions of American families. Taking a cuefrom currently operating state programs, care is defined as"affordable" if it costs parents no more than 30 percent ofthe amount by which their income exceeds the poverty line. Thefirst plan would cost the government $25 billion per year andwould concentrate help on families with incomes up to twicethe poverty line. The second would cost $39 billion per year,would provide higher quality care, and would allow all UnitedStates families to have access to care that was "affordable"by our definition. Costs of these magnitudes preclude financingof any significant part by employers or philanthropies. Whilesome government savings might result from the beneficial effectsof these programs, the main rationale for them rests, not onthe calculation that they will save the government money (althoughthey might), but on the fact that they will prevent considerablemisery to children and their families. Making quality childcare affordable to all families would result in safer, moreeducational, and more enjoyable care for children, and wouldgive a financial boost to families pitifully short of resourcesin a non-stigmatizing way. It would reduce child poverty andreduce enrollment in welfare-type programs. It would also giveparents a chance to particiopate in the world of work and toachieve the gains in resources and status that such a participationwould alllow.     

HEALTH AND AMENITY EFFECTS OF GLOBAL WARMING

This study shows that climate change would probably reduce mortality in the United States by about 40,000 per year, assuming a 4.5° warmer climate—the IPCC best estimate of temperature change with a doubling of carbon dioxide. Benefits would extend to lower medical costs nationwide. Measuring willingness to pay by wage rates shows that people prefer warm climates and would be willing to give up between $30 billion and $100 billion annually for a 4.5° increase in temperatures. ( JEL Q25, J17, J31)     

Medical tourism: reverse subsidy for the elite

The medical tourism sector in India has attracted global attention, given its phenomenal growth in the past decade. India is second only to Thailand in the number of medical tourists that it attracts every year. Estimates indicate that the medical tourism market in India could grow from $310 million in 2005 to $2 billion by 2012. These figures are significant when contrasted with India's overall health care expenditure - $10 billion in the public sector and $50 billion in the private sector. Factors that have contributed to this growth include the relative proficiency in English among health care providers and the cost effectiveness of medical procedures in India. Generally, most procedures in Indian hospitals cost a quarter (or less) of what they would cost in developed countries. The expansion of medical tourism has also been fueled by the growth of the private medical sector in India, a consequence of the neglect of public health by the government. India has one of the poorest records in the world regarding public financing and provisioning of health care. A growing driver of medical tourism is the attraction of facilities in India that offer access to assisted reproductive care technologies. Ironically, this is in sharp contrast with the acute neglect of the health care needs of Indian women. The Indian government is vigorously promoting medical tourism by providing tax concessions and by creating an environment enabling it to thrive. However, there is a distinct disjunction between the neglect of the health care needs of ordinary Indians and public policy that today subsidizes the health care of wealthy foreigners.     

TAX-RATE UNCERTAINTY, FACTOR SUPPLIES, AND WELFARE

Uncertainty about prospective changes in tax rates may increase factor supplies, and hence the tax base, permitting a reduction in tax rates that could result in a net increase in welfare. Under empirically relevant assumptions about attitudes towards risk we find that when an individual exclusively saves or works, the tax base rises in response to greater tax-rate uncertainty, so that welfare could indeed increase. However, when an individual both saves and works, the supply of the randomly taxed factor declines with increased uncertainty, implying that tax revenue and welfare decrease when the nonrandom tax rate is sufficiently low.     

The lifetime economic and social costs of child maltreatment in Australia

A cost of illness (COI) study was undertaken to estimate the magnitude and range of lifetime effects associated with child maltreatment in Australia, using an incidence-based approach. Costs were primarily estimated through calculation of population attributable fractions (PAFs) to determine the marginal effects of child maltreatment on a range of outcomes. PAFs were then applied to estimates of expenditure, inflated to 2014–15 Australian dollars, projected over the life course, according to a baseline age of incident cases for child maltreatment in 2012–13, and discounted at 7% per annum. Sensitivity analysis was conducted using a best and lower bound estimate of incidence of child abuse. The best estimate of the total estimated lifetime financial costs for incident cases of child maltreatment in 2012–13 was $9.3 billion (a cost per child maltreated of $176,437), with a lower bound of $5.8 billion. The best estimate of lifetime costs associated with reduced quality of life and premature mortality (non-financial costs) for all incident cases of child maltreatment in 2012–13 was $17.4 billion, or $328,757 per child maltreated. The considerable lifetime costs associated with child maltreatment warrants an expansion of existing investment in primary and secondary prevention and targeted support services for children and families at risk.     

Cost analysis of the strengthening families program in reducing time to family reunification among substance-affected families

Decision makers typically face uncertainty in determining whether the outcomes of promising child welfare interventions justify the investment. Despite repeated calls for cost analysis in child welfare, original studies that evaluate the costs and effects of child welfare programs have been limited. Moreover, no cost analyses have focused on family reunification programs that address the needs of substance-affected families. The purpose of this study was to evaluate the costs and effects of a federally funded implementation of the Strengthening Families Program (SFP), a 14-week family training curriculum, on time to reunification with a substance-involved child welfare population. Based on event history analysis, we find the typical child participating in SFP spends 190 fewer days in out of home care when compared to a propensity score matched comparison group of children in out-of home care receiving treatment as usual. Re-entry rates between the two groups were not significantly different at follow-up. At an average out-of-home care rate of $86 per child per day in this state, SFP saves approximately $16,340 per participating child in out-of-home care costs. From a cost–benefit perspective, every $1 invested in SFP yields an average savings of $9.83 in this Midwestern demonstration.     

The social costs of child abuse in Japan

The present study calculates the social costs of child abuse in Japan. The items calculated included the direct costs of dealing with abuse and the indirect costs related to long-term damage from abuse during the fiscal year 2012 (April 1, 2012, to March 31, 2013). Based on previous studies on the social costs of child abuse and peripheral matters conducted in other countries, the present study created items for the estimable direct costs and indirect costs of child abuse, and calculated the cost of each item. Among indirect costs, future losses owing to child abuse were calculated using extra costs with a discount rate of 3%. The social cost of child abuse in Japan in the fiscal year 2012 was at least ¥1.6 trillion ($16 billion). The direct costs totaled ¥99 billion ($1 billion), and the indirect costs totaled ¥1.5 trillion ($15 billion). This sum of ¥1.6 trillion for only the year 2012 is almost equal to the total amount of damages of ¥1.9 trillion caused by the 2011 Tohoku Earthquake and Tsunami in Fukushima Prefecture. Moreover, abuse is a serious problem that occurs every year and has recurring costs, unlike a natural calamity. However, Japan has no system for calculating the long-term effects of abuse. Therefore, owing to the scarcity of data, the calculations in the present study may underestimate the true costs.     

The minimum wage and poverty among full-time workers

V. Conclusions The empirical evidence is strong that minimum wages have had little or no effect on poverty in the U.S. Indeed, the evidence is stronger that minimum wages occasionally increase poverty. It also suggests that the minimum wage does not even lower poverty for the one group that, almost by definition, one would expect to be helped: full-time, year-round workers. While the empirical results suggest minimum wages do not achieve what is ostensibly their primary goal — relieving poverty among the working poor — minimum wages do seem to impose a real cost on society in terms of lost income and output. The empirical evidence on work hours suggests that a $1 increase in the minimum wage, far from being almost costless, could conceivably impose income losses to American workers in the $12-15 billion range per year — an amount equal to the “income deficit” of millions of persons counted as poor by the U.S. Bureau of the Census.     

The economic toll of intimate partner violence against women in the United States

This study provides estimates of the economic cost of intimate partner violence perpetrated against women in the US, including expenditures for medical care and mental health services, and lost productivity from injury and premature death. The analysis uses national survey data, including the National Violence Against Women Survey and the Medical Expenditure Panel Survey, to estimate costs for 1995. Intimate partner violence against women cost $5.8 billion dollars (95% confidence interval: $3.9 to $7.7 billion) in 1995, including $320 million ($136 to $503 million) for rapes, $4.2 billion ($2.4 to $6.1 billion) for physical assault, $342 million ($235 to $449 million) for stalking, and $893 million ($840 to $946 million) for murders. Updated to 2003 dollars, costs would total over $8.3 billion. Intimate partner violence is costly in the US. The potential savings from efforts to reduce this violence are substantial. More comprehensive data are needed to refine cost estimates and monitor costs over time.     

THE ROLE OF INFORMATION ON RETIREMENT PLANNING: EVIDENCE FROM A FIELD STUDY

Many households neglect the pivotal task of planning for retirement. Proposals to stimulate employees to save for retirement in the workplace include tax subsidies, which are costly, and using automatic defaults, which may not complement the heterogeneous preferences of savers. This randomized field study shows that an information‐based intervention increases reported retirement plan participation, emergency savings, and using a budget. Employees offered access to education increased actual retirement deferrals by $26 per month. These results suggest that retirement education programs may be an effective strategy to increase retirement planning and saving behavior. (JEL J26, D14, D91)     

A Cost‐Effectiveness Analysis of the Grameen Bank of Bangladesh

Reports of the success of the Grameen Bank of Bangladesh have led to rapid growth in funding for microfinance. But has the Grameen Bank been cost‐effective? This article compares output with subsidy for the bank in a present‐value framework. For the timeframe 1983–97, subsidy per person‐year of membership in Grameen was about $20, and subsidy per dollar‐year borrowed was about $0.22. Although the article does not measure consumer surplus for Grameen users, the evidence in the literature suggests that surplus probably exceeds subsidy. The Grameen Bank — if not necessarily other microlenders — was probably a worthwhile social investment.     

Health savings accounts and health reimbursement arrangements: assets, account balances, and rollovers, 2006-2010

ASSET LEVELS GROWING: In 2010, there was $7.7 billion in health savings accounts (HSAs) and health reimbursement arrangements (HRAs), spread across 5.7 million accounts. This is up from 2006, when there were 1.2 million accounts with $835.4 million in assets, and 2009, when 5 million accounts held $7.1 billion in assets. AFTER LEVELING OFF, AVERAGE ACCOUNT BALANCE DROPS SLIGHTLY: Increases in average account balances leveled off in 2008 and 2009, and fell slightly in 2010. In 2006, account balances averaged $696. They increased to $1,320 in 2007, a 90 percent increase. Account balances averaged $1,356 in 2008 and $1,419 in 2009, 3 percent and 5 percent increases, respectively. In 2010, average account balances fell to $1,355, down 4.5 percent from the previous year. AVERAGE ROLLOVER DECLINES, WHILE TOTAL ROLLOVERS INCREASE: Despite a decline in the average rollover amount in 2010, total assets being rolled over have been increasing. $4.2 billion was rolled over in 2010, up from $4 billion in 2009. The average rollover increased from $592 in 2006 to $1,295 in 2009, and fell to $1,029 in 2010. The percentage of individuals without a rollover decreased from 23 percent in 2006 to 10 percent in 2009 and increased slightly to 13 percent in 2010. HEALTHY BEHAVIOR MEANS HIGHER ACCOUNT BALANCES AND HIGHER ROLLOVERS: Individuals who exercised, those who did not smoke, and those who were not obese had higher account balances and higher rollovers than those with less healthy behaviors. It was also found that individuals who used cost or quality information had higher account balances and higher rollovers compared with those who did not use such information. However, no relationship was found between either account balance or rollover amounts and various cost-conscious behaviors such as checking pricing before getting services or asking for generic drugs instead of brand names, among other things. DIFFERENCES IN ACCOUNT BALANCES: Men have higher account balances than women, older individuals have higher account balances than younger ones, account balances increase with household income, and education has a significant impact on account balances independent of income and other variables. DIFFERENCES IN ROLLOVER AMOUNTS: Men rolled over more money than women, and older individuals had higher rollover amounts than younger individuals. Rollover amounts increase with household income and education, and individuals with single coverage rolled over a higher amount than those with family coverage.     

Health savings accounts and health reimbursement arrangements: assets, account balances, and rollovers, 2006-2011

ASSET LEVELS GROWING: In 2011, there was $12.4 billion in health savings accounts (HSAs) and health reimbursement arrangements (HRAs), spread across 8.4 million accounts, according to data from the 2011 EBRI/MGA Consumer Engagement in Health Care Survey, sponsored by EBRI and Matthew Greenwald & Associates. This is up from 2006, when there were 1.3 million accounts with $873.4 million in assets, and 2010, when 5.4 million accounts held $7.3 billion in assets. AFTER LEVELING OFF, AVERAGE ACCOUNT BALANCES INCREASED: After average account balances leveled off in 2008 and 2009, and fell slightly in 2010, they increased in 2011. In 2006, account balances averaged $696. They increased to $1,320 in 2007, a 90 percent increase. Account balances averaged $1,356 in 2008 and $1,419 in 2009, 3 percent and 5 percent increases, respectively. In 2010, average account balances fell to $1,355, down 4.5 percent from the previous year. In 2011, average account balances increased to $1,470, a 9 percent increase from 2010. TOTAL AND AVERAGE ROLLOVERS INCREASE: After declining to $1,029 in 2010, average rollover amounts increased to $1,208 in 2011. Total assets being rolled over increased as well: $6.7 billion was rolled over in 2011, up from $3.7 billion in 2010. The percentage of individuals without a rollover remained at 13 percent in 2011. HEALTHY BEHAVIOR DOES NOT MEAN HIGHER ACCOUNT BALANCES AND HIGHER ROLLOVERS: Individuals who smoke have more money in their accounts than those who do not smoke. In contrast, obese individuals have less money in their account than the nonobese. There is very little difference in account balances by level of exercise. Very small differences were found in account balances and rollover amounts between individuals who used cost or quality information, compared with those who did not use such information. However, next to no relationship was found between either account balance or rollover amounts and various cost-conscious behaviors. When a difference was found, those exhibiting the cost-conscious behavior were found to have lower account balances and rollover amounts. DIFFERENCES IN ACCOUNT BALANCES: Men have higher account balances than women, older individuals have higher account balances than younger ones, account balances increase with household income, and education has a significant impact on account balances independent of income and other variables. DIFFERENCES IN ROLLOVER AMOUNTS: Men rolled over more money than women, and older individuals had higher rollover amounts than younger individuals. Rollover amounts increase with household income and education, and individuals with single coverage rolled over a slightly higher amount than those with family coverage.     

Supplemental SOR grants released to states

Last month, the federal Department of Health and Human Services (HHS) released an additional $487 million to states and territories in its State Opioid Response (SOR) grant program, bringing the 2019 total to $1.4 billion, including the $933 million in second‐year, continuation SOR grants to be provided later this year. The SOR grants increase access to medication‐assisted treatment (MAT), reduce unmet treatment need and reduce opioid‐related overdose deaths.     

What does $8 billion for coronavirus say about opioid funding?

Last week, Congress gave $8 billion to the fight against coronavirus, seemingly overnight. Certainly, compared to the extra $2 billion a year for addressing the opioid epidemic, the money came much faster. It took years for the State Targeted Response to the Opioid Crisis (STR) grant to be included, as it was in the Cures Act passed by Congress in 2016 and signed into law by President Obama in December of that year. The State Opioid Response (SOR) grants continue. How did the coronavirus $8 billion — $6 billion more than the White House had asked for — materialize so quickly? We asked two Capitol Hill experts.     

Effects of child support pass-through and disregard policies on in-kind child support

This paper examines whether states’ elimination of child support disregards for welfare payments after welfare reform caused non-custodial parents to increase in-kind support. I use longitudinal data from the Survey of Program Dynamics and take advantage of state and year variation in child support disregard policies before and after the 1996 welfare reform to identify effects of the disregard on in-kind support. I find that a $100 decrease in the disregard corresponds to a 3.2 percentage point increase in the probability a child will receive in-kind child support.     

DRINKING AGE LAWS AND HIGHWAY MORTALITY RATES: CAUSE AND EFFECT

This paper presents estimates of the effects of the drinking age and beer taxes on youth motor vehicle mortality. A simultaneous equation model is used and the results show that the drinking age is a function of mortality rates. The results also show that for eighteen- to twenty-year-old drivers an increase in the drinking age to twenty-one, which is approximately 8 percent, would reduce mortality by approximately 18 percent. Also a 100 percent increase in the real beer tax, which is approximately $1.50 per case, would reduce highway mortality by about 27 percent.     

Sign‐on letter for SAPT increase due March 20

Representatives Paul Tonko (D‐New York) and Brian Fitzpatrick (R‐Pennsylvania) need signatures for their letter to the House Appropriations Committee urging a $500 million increase for the Substance Abuse Prevention and Treatment (SAPT) block grant in fiscal year 2020. “This funding stream serves as the cornerstone of States' substance abuse treatment, prevention, and recovery systems,” states the letter. “SAPT Block Grant funds, which are distributed by formula to all States and Territories, provide lifesaving treatment services to approximately 1.5 million individuals per year. In some States, the SAPT investment accounts for 100 percent of substance use prevention dollars. Unfortunately, SAPT Block Grant funding has not kept up with inflation, resulting in a 24 percent—or $444 million—decrease in actual funding since 2009.” The block grant has been just over $2 billion for decades. The letter requests that legislators fund just over $2.358 million for the SAPT block grant, which is equal to what the House of Representatives approved in the FY2019 Labor‐Health and Human Services Appropriations legislation and a $500 million increase over current funding levels. To sign on to the letter, contact Jeff Morgan in Rep. Tonko's office at jeff.morgan@mail.house.gov or Joseph Knowles in Rep. Fitzpatrick's office at joseph.knowles@mail.house.gov .