Hoynes-Moffit Statement Regarding Substitution Effect

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Statement by Hilary Hoynes and Robert Mo t regarding Meyer/

Corinth accusa on regarding subs tu on e ect in NAS report.

You asked speci cally about the claim by Meyer/Corinth about a


consequen al error for not calcula ng the “subs tu on e ect” for the
CTC in our 2019 Na onal Academy Report on reducing child poverty.
As a commi ee, we discussed the possible e ects of an expanded
child tax credit on employment. In par cular, we considered a $3000
per year child allowance. The baseline policy that this was being
compared to was the 2015 tax law. At that me, the child tax credit had
a maximum of $1000 and it was phased in at earnings above $3000/
year at a 15 percent rate.

Given the exis ng law, and the policy we were expanding, it was the
assessment of our commi ee that the “income e ects” of the policy
change would be more important and the subs tu on e ect would be
muted. Why? Because going from $1000 to $3000 is a large increase in
income! And losing the 15% phase-in of the exis ng CTC—which has a
small e ect on the income gain from working—we regarded to be more
modest. We judged that most people would no ce a large $2000
increase in income more than they would no ce a very small reduc on
in the working gain, and that they would respond more to the former.

Nothing in the Corinth-Meyer paper changes our mind about that


judgement, because they are vastly overes ma ng that subs tu on
e ect. But, yes, Goldin et al’s es mates are larger than the NAS report,
though only 1/3 of the Corinth-Meyer es mates. There are two reasons
for that. First, the mandate given to our commi ee was to study only
the e ects on low income families, and we es mated the e ects on
employment for families with income below 200% of poverty. Goldin et
al looked across the whole popula on. But one reason we are skep cal
of their results, as well as those of Corinth-Meyer, is that the exis ng

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evidence does not provide us with much evidence on the response to


the CTC of families with incomes above $50,000, and we think it likely
that there is very li le response above that level. Goldin et al.
disagree--as do Corinth-Meyer, of course, who assume employment
reduc ons from families with incomes up to $150,000. Second, Goldin
et. al captured subs tu on e ects as well as income e ects, though
using e ects far, far more reasonable than those of Corinth-Meyer.

The bo om line is that we don’t think we were wrong in our


assessment, although we are open to the possibility that the
employment e ects may be a bit bigger than we es mated. Like all
good scien sts, we are willing to alter our opinion if shown hard
evidence that we were incorrect. But we cannot imagine ever being
persuaded of employment e ects in the Corinth-Meyer range, whose
analysis we think is fundamentally o base.

Hilary Hoynes
Professor of Economics and Public Policy
Haas Dis nguished Chair of Economic Dispari es
Director, Berkeley Opportunity Lab
University of California, Berkeley

Robert Mo
Krieger-Eisenhower Professor of Economics
Department of Economics
Johns Hopkins University

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