The Causal Effect of Income Is (Often) Zero
Recent studies suggest that the causal effect of increased income on various social outcomes may be negligible. While higher income is correlated with better health and lower mortality rates, randomized studies show that these effects diminish when accounting for other factors. This raises questions about the effectiveness of income transfers in alleviating broader issues associated with poverty.
- ▪Poverty is linked to negative outcomes such as low educational attainment and poor health.
- ▪Research indicates that while increased income improves consumption and leisure, it does not necessarily address the broader issues associated with poverty.
- ▪Studies on lottery winners in Sweden reveal that the causal effect of wealth on mortality is statistically indistinguishable from zero.
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The Causal Effect of Income is (Often) ZeroEvidence on the effect of income on health, education, crime, and child outcomes from lotteries and RCTsMaxwell TabarrokMay 19, 2026911218SharePoverty is associated with a litany of negative outcomes in addition to the direct effects of material deprivation. For example: low educational attainment, high crime, poor health, food insecurity, high stress, homelessness, and more. If this bundle of associated harms is the causal result of poverty, then the case for poverty-relieving transfers is bolstered. Not only do you get to transfer resources to higher-marginal-utility consumers, you also get to solve this long list of other social ills.But the correlation between poverty and these outcomes is not sufficient to prove a causal link.
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