Direct investments in the health and education of low-income children yield the highest returns

  

Which policies improve social well-being the most? Should we spend more (or less) on health insurance? What about raising top marginal income tax rates, or targeting investments towards children? With those questions in mind, this paper examines 133 historical policy changes in the U.S. over the past half century.

The study analyzes policies spanning social insurance (e.g. health and disability insurance), education and job training (e.g. preschool spending and college subsidies), taxes and cash transfers (e.g. top tax rate changes or expansions of the earned income tax credit), and in-kind transfers (e.g. housing vouchers and food stamps.)

The authors calculate both the benefit that each policy provides its recipients (measured as their willingness to pay) and the policy’s cost to the government. The ratio of these two estimates makes up a policy’s Marginal Value of Public Funds, or its “MVPF.” Their analysis has yielded the following conclusions:

.Finding #1: Direct investments in the health and education of low-income children yield the highest returns

The authors find that expansions of health insurance to children, investments in preschool and K-12 education, and policies increasing college attainment all yield high returns.

Finding #2: MVPFs are high throughout childhood

The authors find high MVPFs for policies that target children throughout the full duration of childhood. This is true for a range of policies spanning from preschool and health programs for young children to college policies for older youth. This finding directly challenges the notion that opportunities for high-return investments in children decline rapidly with age. Historically, there have been opportunities for high-return investments in children and youth of all ages.

Finding #3: Many direct investments in low-income children’s health and education pay for themselves.

An MVPF of infinity occurs when beneficiaries value a policy (their willingness to pay is positive), and the policy does not impose a net cost on the government. For example, while government spending on public universities is costly, evidence from the state of Florida suggests that raising enrollment in public colleges pays for itself over the long-run through increased tax revenue and reduced transfer payments.

Similarly, several Medicaid expansions to children resulted in increased tax revenue and decreased government spending on medical care for recipient children in adulthood. These long-run impacts were large enough to fully offset the initial program expenditure. As a result, these policies provided benefits to children without costing the government any additional resources. narrowing in on the denominator of our MVPF equation. The figure reports the average net cost for every $1 of upfront spending in each policy category. In the case of four major Medicaid expansions studied in previous literature, the authors estimate that each $1 of initial spending was fully repaid and that the policy returned an additional $0.78 to the government.