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 like the 2008 Lifeline phone subsidy expansion, which aimed to increase affordable access to services. Using state-level timing variation, I estimate that the expansion reduced households' wireless service spending by more than 100% of subsidy payments. The expansion created 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