The framework of our benefit-cost model relies on high-quality studies on cash and near-cash transfers. Through a three-stage screening process, we selected 21 experimental or quasi-experimental studies that evaluate the causal impact of cash and near-cash transfers on children and their parents. These impacts include but are not limited to children’s future earnings in adulthood, children’s health and longevity, parents’ health and longevity, reductions in crime, and increases in children’s education.
For each study, we standardize their results so they represent the per-year impact associated with a $1,000 increase in family income from cash or near-cash transfers per year. Given our assumptions of how long the benefits will last, we then calculate the present discounted value of the lifetime impact associated with a $1,000 increase in family income from cash or near-cash transfers, using a discount rate of 3 percent. These standardized benefits and costs then become the foundation of our benefit-cost model, which can be used to analyze an array of policies affecting family income, such as child allowance, subsidized child care, paid family leave, and more. Details of our benefit-cost model are included in our paper published in the Journal of Benefit-Cost Analysis, titled “The Benefits and Costs of a Child Allowance”.
As new studies broaden and deepen our understanding of the impacts of cash and near-cash transfers, or suggest new methods for estimating the benefits of cash and near-cash benefits, we will update our model accordingly.
Because a dollar today is worth more than a dollar next year (a dollar today can be invested at the current interest rate and will be worth more than a dollar by next year), expenditures today are worth more than the same level of expenditures 10, 20, or 30 years from now. Conversely, a benefit of a certain level received in the future has a smaller monetary value in the present. The process of estimating future gains or losses in today’s terms is called discounting, and the resulting estimation is referred to as the present discounted value. Using a real interest rate of 3 percent (in addition to any inflation), we discount the expected future increases and decreases across a range of health, education, labor market, and other well-being expenditure areas likely to be impacted by a policy change to their present-day value to represent how much these expenditures would be worth today (ex: 2023 dollars).