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EXPENDITURE PROGRAMS FOR THE POOR
Chapter 13
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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
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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
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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
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Analysis of Work Incentives
D |Slope| = w Income per month c b 2w w a T Hours of leisure per month Time endowment
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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
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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
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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
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Analysis of Work Incentives
D E2 Income per month (= earnings + transfers) P R Hours worked M T Hours of leisure per month
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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
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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
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National versus State Administration
Does State Administration create a Race to the Bottom? State Administration allows state experimentation
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Other Benefit Programs for the Poor Earned Income Tax Credit
2012 for a single parent with two children
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Other Benefit Programs for the Poor Earned Income Tax Credit
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Empirical Evidence: The Effect of the Earned Income Tax Credit on Labor Supply
Labor force participation Work hours
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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
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The Medicaid Notch M Income per year D R S Z N $1,000 X T
X T Hours of leisure per year
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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
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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
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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
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Other Benefit Programs for the Poor Programs to Enhance Earnings
Education Head Start Employment and Training
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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
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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
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