EXPENDITURE PROGRAMS FOR THE POOR Chapter 13

A Quick Look at Welfare Spending Means-tested Cash versus in-kind assistance Anti-poverty impact of non-means-tested programs Federal Expenditures on Major Need-Tested Programs (2009) Program Federal Expenditures ($) Health 319.3 Cash aid 129.6 Food assistance 77.5 Housing and development 59.9 Education 58.2 Social Services 44.3 Energy assistance 10.3 Source: Spar [2011,p.9] Employment and training 8.6 13-2

TANF Aid to Families with Dependent Children (1935-96) TANF-Temporary Assistance for Needy Families (1996-?) No entitlement Time limits Work requirement Fixed $ Block grants to states States have much flexibility and authority over structure of their welfare system Benefit reduction rates

Work Incentives The Basic Trade-offs G – basic grant if not working The Basic Trade-offs G – basic grant if not working t – rate at which grant reduced when recipient earns money B – benefit received B = G – tE B = 0 if E = G/t Challenge: How to provide an adequate income support program while minimizing work disincentives? the higher G, the higher t higher G or lower t leads to a higher breakeven E which raises the costs of the system and includes more people

Analysis of Work Incentives D |Slope| = w Income per month c b 2w w a T Hours of leisure per month Time endowment

Analysis of Work Incentives D |Slope| = w Income per month E1 G iii Income ii Leisure i F T Hours of leisure per month Work

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

Analysis of Work Incentives Budget constraint with t = 100% D 0 hours of work selected P1 Income per month (= earnings + transfers) P S R G $338 F T Hours of leisure per month

Analysis of Work Incentives D E2 Income per month (= earnings + transfers) P R Hours worked M T Hours of leisure per month

Work Requirements When welfare recipient can’t choose work hours Workfare: able-bodied individuals receive income-support only if they agree to participate in a work-related activity TANF Mandated work

TANF Characteristics Time Limits Family Structure Lifetime Per spell of welfare Family Structure Marriage Childbearing Empirical results as to whether TANF affected the structure of low-income families

National versus State Administration Does State Administration create a Race to the Bottom? State Administration allows state experimentation

Other Benefit Programs for the Poor Earned Income Tax Credit 2012 for a single parent with two children

Other Benefit Programs for the Poor Earned Income Tax Credit

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

Other Benefit Programs for the Poor Supplemental Security Income: Federal program for aged, blind, disabled. SSI vs. conventional welfare Uniform minimum federal guarantee Benefit levels Work incentives Medicaid How Medicaid works Work disincentives: Medicaid Notch

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

Other Benefit Programs for the Poor Unemployment Insurance Why does government insure against unemployment? Adverse selection Moral hazard Benefits Gross replacement rate Financing Experience rated Effects on Unemployment

Other Benefit Programs for the Poor Supplemental Nutrition Assistance Program SNAP as an in-kind transfer Direct cost paid by federal government Administered by the states Participation rates

Other Benefit Programs for the Poor 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

Other Benefit Programs for the Poor Programs to Enhance Earnings Education Head Start Employment and Training

New Ideas Replace current hodgepodge with single cash assistance program Are benefit levels high enough? Faith-based social services might address the hypothesized (by some) “spiritual” and “moral” roots of poverty

Chapter 13 Summary Means-tested programs transfer income and services such as housing, health insurance, food, education, and job training, to people whose resources fall below a certain level Economic research surrounds how well these programs achieve the dual goals of providing adequate assistance and minimizing work disincentive