The Growth Effects and Unintended Consequences of State and Federal Policies

Ben Brewer, University of New Hampshire, Durham

Abstract

In this research, I examine the intended and unintended consequences of three types of policies currently under debate at the state and federal level: traffic safety laws, national health insurance reforms and state income tax benefits for the elderly. My first essay explores an unintended consequence of state seat belt laws. These laws mandate individuals must wear a seat belt with the presumed goal of reducing traffic fatalities, but the prevailing view is that they also reduce the number of organs available. I provide a conceptual model that reveals the law could either increase or decrease organ donation. Using state-level data from 1995-2014, I find evidence that while the law encourages seat belt use and reduces traffic fatalities, it does not decrease the overall supply of organs. Instead, the law increases the number of organs donated per traffic fatality, possibly due to the way the seat belt increases the protection of organs and/or changes the type of death an accident victim experiences. Mandatory seat belt laws therefore appear to be effective life-saving policies that do not impose a cost to those on organ transplantation wait lists.

My second essay explores the effect of a broader set of health policies at the federal level on the growth of health care expenditures. Using multiple structural break tests and annual data from 1960-2015, we estimate changes in the relationship between health expenditures and income in the US. We find evidence that this relationship changed in 1966 and 2010, two years of significant changes to national-level policies (Medicare/Medicaid and the Affordable Care Act/Great Recession). We cannot determine whether these changes increased or decreased health spending growth due to the lack of data around these dates in our sample. However, the policy changes that occur in the middle of our sample do not appear to have achieved their intended goal of slowing health spending growth.

I continue to focus on growth in my third essay by investigating the effects of state elderly income tax breaks on state economic growth. Offered on the basis of age and through favorable social security and pension income treatment, these tax breaks are championed by politicians as being beneficial to the state’s overall economy. We calculate the income tax benefit specific to being elderly and apply two alternative, commonly used empirical approaches to estimate the short and long run effects of these policies on state GDP growth. Despite politicians' justifications, we find no consistent evidence that these breaks improve economic growth, even for those directed at the higher income elderly.