Universal Cash Transfers and Credit Outcomes: Evidence from the Alaska Permanent Fund Dividend

• In Event: Examining the Reach and Impact of Tax Credits and Transfers at the State and Federal Level

Abstract

Introduction

This study examines the effects of universal cash transfers on financial outcomes, focusing on the Alaska Permanent Fund Dividend (PFD), which provides annual cash payments to nearly all Alaskans. Established in 1982, the PFD is unique in its universal eligibility criteria, offering payments to residents regardless of income, employment, or family status. With payment amounts varying between $1,072 and $2,184 from 2014 to 2019, the PFD serves as a natural experiment for investigating how unconditional cash transfers influence credit behaviors. In this study, we draw on data tracking individuals’ credit histories to explore both the short- and long-term effects of the PFD on credit outcomes.

 

Data and Method

We leverage an anonymized, monthly panel dataset from Equifax. Our primary sample includes credit data from all Alaskans between 2013 and 2019, and a 10% random sample of individuals from other U.S. states. We classify individuals as either residents or migrants based on their ZIP code. The PFD’s eligibility criteria allow for a comparative analysis of borrowers who qualify for the PFD and those who do not, based on their length of residence in the state. We estimate the immediate effects of receiving the PFD on credit outcomes using fixed-effects models that compare credit outcomes before and after the PFD payment months across different subsamples.

To assess the long-term effects of the PFD, we aggregate individual credit outcomes on a yearly basis and apply Difference-in-Differences (DiD) and Triple Differences estimation methods. For the DiD analysis, we estimate the impact of becoming an Alaska resident on credit outcomes by using migrants who have not yet migrated as a control group, and test robustness by employing Callaway and Sant'Anna and Sun and Abraham estimators. To correct for the potential effects of migration itself, we implement a Triple Differences strategy that compares Alaskan migrants to a sample of migrants who moved between non-Alaska states during the same calendar year and from the same origin states.

 

Preliminary results

Receiving the PFD is associated with an average increase in credit scores of 1.8 to 2.4 points within two months of the payment. Additionally, we observe a significant reduction in the likelihood of delinquencies, indicating improved financial stability and credit behavior in the short term. The PFD also has a lasting effect on borrowers' credit profiles, raising credit scores by an average of 3.0 to 5.7 points in subsequent years. We also observe a persistent decrease in the likelihood of delinquency, along with an increase in borrowing capacity.

 

Conclusion

This study provides evidence that universal cash transfers, like the Alaska Permanent Fund Dividend, can have significant effects on credit outcomes. By analyzing both short-term and long-term responses, we demonstrate that the PFD improves credit scores, reduces short-term delinquencies, enhances credit accessibility, and promotes financial stability. The results have important implications for understanding the role of direct financial transfers in shaping individuals’ financial behaviors, with potential policy implications for similar programs aimed at improving economic security and access to credit.

Author

• Guangli Zhang, Washington University in St. Louis
  Presenting Author