Crowd-Out or Affordability? The Lifeline Expansion's Effect on Wireless Service Spending

Public subsidization of private goods often leads to crowd-out, reducing private spending. This effect is intended for a policy such as the 2008 Lifeline phone subsidy expansion, which aimed to increase affordable access to services. I examine the effects of this policy on households' self-reported wireless phone service spending in the Consumer Expenditure Survey. Using state-level variation in policy implementation and triple-differences event study methods, I estimate that the expansion reduced households' wireless service spending by more than 100 percent of subsidy payments. I document that the expansion led to a separate, competitive market for providers catering to low-income households. Consequently, higher-quality subsidized services crowded out lower-quality unsubsidized options, saving households more than an equivalent cash transfer. This highlights how market segmentation and competition can magnify a targeted subsidy's impact.