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EXPENDITURE PROGRAMS FOR THE POOR

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. 13- 2. TANF. Aid to Families with Dependent Children (1935-96)

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EXPENDITURE PROGRAMS FOR THE POOR

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  1. EXPENDITURE PROGRAMS FOR THE POOR Chapter 13

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

  3. 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

  4. 0 Work Incentives 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?

  5. Analysis of Work Incentives D |Slope| = w Income per month c b 2w w a 0 T Hours of leisure per month Time endowment

  6. Analysis of Work Incentives D |Slope| = w Income per month E1 G iii Income ii Leisure i 0 T Hours of leisure per month F Work

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

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

  9. Analysis of Work Incentives D E2 P Income per month (= earnings + transfers) R Hours worked Hours of leisure per month 0 T M

  10. Work RequirementsWhen 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

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

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

  13. Other Benefit Programs for the PoorEarned Income Tax Credit 2012 for a single parent with two children

  14. Other Benefit Programs for the PoorEarned Income Tax Credit

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

  16. 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

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

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

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

  20. Other Benefit Programs for the PoorHousing 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

  21. Other Benefit Programs for the PoorPrograms to Enhance Earnings • Education • Head Start • Employment and Training

  22. 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

  23. 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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