When a government looks to improve social well-being, what type of policy change should they implement in order to get the best value for their expenditure? Over the years many different policy changes have been made, but analyses have been conducted using various methods, meaning direct comparisons are not simple. The authors of a recent paper looked at 133 policy changes (in governmentprovided social insurance, education and job training, taxes and case transfers, and in-kind transfers) made in the USA over the past fifty years.[1]

Using existing causal estimates the authors were able to calculate benefits (as recipients’ willingness-to-pay) and net cost of each policy, including any long-term impact on governmental budget. From this they calculated a Marginal Value of Public Funds (MVPF) score for each policy. When the MVPFs were compared, the authors found that, historically, the highest MVPFs were for policies that provided direct investments in the health and education of low-income children, with an average score greater than 5. A large number of these policies end up paying for themselves through additional taxes and reduced transfers. Similarly large MVPFs were seen in many policies that targeted change in education and health of children of any age. However, policies that targeted adults had smaller MVPFs, ranging from 0.5 to 2; they only scored higher when the policy also spilt over to affect children.

Peter Chilton, Research Fellow

Reference:

1. Hendren N & Sprung-Keyser B. A Unified Welfare Analysis of Government Policies. Quart J Econ. 2020.