Working Paper: NBER ID: w29927
Authors: Eric Chyn; Diego Daruich
Abstract: To study the effects of neighborhood and place-based interventions, this paper incorporates neighborhood effects into a general equilibrium (GE) heterogeneous-agent overlapping-generations model with endogenous location choice and child skill development. Importantly, housing costs as well as neighborhood effects are endogenously determined in equilibrium. Having calibrated the model based on U.S. data, we use simulations to show that predictions from the model match reduced form evidence from experimental and quasi-experimental studies of housing mobility and urban development programs. After this validation exercise, we study the long-run and large-scale impacts of vouchers and place-based subsidies. Both policies result in welfare gains by reducing inequality and generating improvements in average skills and productivity, all of which offset higher levels of taxes and other GE effects. We find that a voucher program generates larger long-run welfare gains relative to place-based policies. Our analysis of transition dynamics, however, suggests there may be more political support for place-based policies.
Keywords: neighborhood effects; housing mobility; child development; government policies; welfare gains
JEL Codes: H53; I31; J13; R13; R23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| neighborhood-based interventions, specifically housing vouchers (R28) | significant improvements in child outcomes (I24) |
| housing vouchers (R21) | long-run gains in earnings and skills (J24) |
| voucher program (I22) | 34% increase in consumption equivalent units (E20) |
| voucher program (I22) | reduce inequality by 63% in the variance of log-after-tax lifetime earnings (D31) |
| voucher program (I22) | increase upward mobility by 277% (J62) |
| place-based policies, like wage subsidies (J68) | smaller welfare gains (0.7% increase in consumption equivalence) (D69) |
| voucher programs (I22) | generate larger welfare gains (D69) |
| place-based policies (R28) | garner more political support due to evenly distributed benefits among current adults (H55) |