CHAPTER 13 Expenditure Programs for the Poor Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

13-2 A Quick Look at Welfare Spending Means-tested Cash versus in-kind assistance Anti-poverty impact of non-means-tested programs

13-3 TANF Aid to Families with Dependent Children ( ) TANF-Temporary Assistance for Needy Families (1996-?) –No entitlement –Time limits –Work requirement –Block grants to states –Benefit reduction rates

13-4 Work Incentives B = G – tE B = 0 if E = G/t The Basic Trade-offs G – basic grant if not working t – rate at which grant reduced when recipient earns money B – benefit received

13-5 w* Analysis of Work Incentives Hours of leisure per month Income per month 0T a Time Endowment D |Slope| = w b c 2w

13-6 Analysis of Work Incentives Hours of leisure per month Income per month 0T D |Slope| = w i ii iii E1E1 F G LeisureWork Income

13-7 Analysis of Work Incentives Hours of leisure per month Income per month (= earnings + transfers) 0T D |Slope| = w Q F G S $100 V |Slope| = 3/4w K Hours before TANF Hours after TANF

13-8 Analysis of Work Incentives Hours of leisure per month Income per month (= earnings + transfers) 0T D P F G $338 R P1P1 Budget constraint with t = 100% S 0 hours of work selected

13-9 Analysis of Work Incentives Hours of leisure per month Income per month (= earnings + transfers) 0T D P M G R E2E2 Hours worked

13-10 Work Requirements Workfare TANF –Mandated work

13-11 Time Limits Lifetime Per spell of welfare

13-12 Family Structure Marriage Childbearing

13-13 National versus State Administration Race to the Bottom State experimentation

13-14 Earned Income Tax Credit This example is for 2008 for a married couple with two or more children.

13-15 Empirical Evidence: The Effect of the Earned Income Tax Credit on Labor Supply Labor force participation Work hours

13-16 Supplemental Security Income SSI versus conventional welfare –Uniform minimum federal guarantee –Benefit levels –Work incentives

13-17 Medicaid How Medicaid works Crowding Out The Medicaid Notch Medicaid and Health

13-18 The Medicaid Notch Hours of leisure per year Income per year 0T D M N R S X Z $1,000

13-19 Unemployment Insurance Why does government insure against unemployment? –Adverse selection –Moral hazard Benefits –Gross replacement rate Financing –Experience rated Effects on Unemployment

13-20 Food Stamps and Child Nutrition How food stamps work Foods stamps as an in-kind transfer Participation rates

13-21 Housing Assistance How housing assistance works Housing subsidies –Section 8 certificates –Voucher programs Impact on stock of housing Public housing and economic self-sufficiency of inhabitants

13-22 Programs to Enhance Earnings Education –Head Start Employment and Training

13-23 Overview Source: Holt [2005, Part D, Figure 1]. Figure 13.10: Estimated effective marginal tax rates for a one-parent, two-child household residing in Wisconsin (2000)

13-24 New Ideas Replace current hodgepodge with single cash assistance program Benefit levels Faith-based social services