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Faculty findings, fall 2021

December 13, 2021

Who would pay if we stop using natural gas?

New research co-authored by economist Catherine Hausman considers the equity impacts of transitioning from natural gas to other energy sources.

According to the U.S. Energy Information Administration, natural gas makes up more than one-third of Americans' energy consumption, just behind petroleum. It's used for heating, cooking, transportation, and manufacturing. Yet its extraction and transportation is a major driver of carbon dioxide and methane emissions contributing to global climate change.

As customers turn to electricity for their energy needs, natural gas utilities would pass on the fixed costs of maintaining legacy pipeline networks to the smaller pool of customers left behind. For a 15 percent reduction in residential gas customers, the researchers calculate bill increases of roughly $30 per year for remaining customers, but for a 90 percent reduction in customers, bill increases are calculated to be around $1,500 per year.

Hausman documents suggestive evidence of significant equity implications of customer migration away from natural gas, with the responsibility for maintaining expensive infrastructure disproportionately falling on low-income and African-American communities.

Hausman and her coauthor, Lucas W. Davis, hope the study can boost understanding of an issue that's applicable to other natural monopolies undergoing change, such as water quality and accessibility, the transition from landlines to wireless devices, and the rise of rooftop solar panels.

Tax credit has greatest impact on maternal employment in early childhood years

Many policymakers have taken an interest in how targeted tax policies can boost employment and raise income for low-income families. Research to date does not take into account the different employment challenges that mothers with very young children face compared to those with older, school-age children. Results from a new study by Katherine Michelmore and Natasha Pilkauskas show the Earned Income Tax Credit (EITC) boosts maternal employment the most for mothers with infants and toddlers, with decreasing employment effects as children age.

With a $1,000 increase in average EITC benefits, unmarried mothers with children under age three are more likely to work full-time, increasing pre-tax earnings by more than $2,400, and reducing poverty by approximately 5 percentage points. For those with school-age children, the effects are still positive, with higher pre-tax income, but no significant effects on poverty reduction.

In addition to analyses using data from the Current Population Survey Annual Social and Economic Supplement, the researchers also used the Survey of Income and Program Participation to analyze the effect of the EITC on child care arrangements, amount of time spent in care, and costs of care.

Increases in the EITC are linked with greater use and spending on child care among mothers with children under three, particularly in informal care arrangements, which are linked with lower quality care.

Michelmore and Pilkauskas conclude that expansions to the EITC are likely to be effective at raising income, but could come with other negative consequences for child outcomes.

A new way to measure the impact of state capacity

The ability of a state to implement its goals or policies, commonly known as state capacity, is a core concept in political science. It's widely known that state institutions exert influence, but researchers have difficulty conceptualizing state capacity and measuring its impact on outcomes.

Using Bayesian latent variable analysis, Jonathan Hanson and co-author Rachel Signman developed a new measure of state capacity for use in a wide range of policy contexts to better assess the effects of state institutions on outcomes.

Hanson and Signman's new latent variable is estimated using multiple observed indicators based on three distinct core dimensions that are necessary to carry out the functions of the state. They include: the capacity to extract resources (like tax revenue); coercive capacity (such as the ability to preserve borders, protect against external threats, enforce laws, and maintain internal order); and administrative capacity, or the ability to to develop
policy, deliver public services, and regulate commercial activity.

Though distinct, the research suggests that these dimensions are interrelated. States with strength in one area likely have strength in others. With these new insights, Hanson and Signman hope policy researchers and political scientists will further investigate how state capacity develops, and the relationships between institutions, economic growth, and development outcomes.

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