EXPENDITURE PROGRAMS FOR THE POOR Chapter 13. A Quick Look at Welfare Spending Means-tested Cash...

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 319.3Cash aid 129.6Food assistance 77.5Housing and development 59.9Education 58.2Social Services 44.3

Energy assistance 10.3Source: Spar [2011,p.9]

Employment and training 8.613-2

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

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Work Incentives

B = G – tEB = 0 if E = G/tChallenge:How to provide an adequate

income support program while minimizing work disincentives?

The Basic Trade-offs

G – basic grant if not working

t – rate at which grant reduced when recipient earns money

B – benefit received

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w

Analysis of Work Incentives

Hours of leisure per month

Inco

me

per m

onth

0 Ta

D|Slope| = w

b

c

2w

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Time endowment

Analysis of Work Incentives

Hours of leisure per month

Inco

me

per m

onth

0 T

D|Slope| = w

i

ii

iiiE1

F

G

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Leisure

Work

Analysis of Work Incentives

Hours of leisure per month

Inco

me

per m

onth

(= e

arni

ngs

+ tr

ansf

ers)

0 T

D|Slope| = w

Q

F

S

$100

|Slope| = 3/4w

K13-7

Hours after TANF

Hours before TANF

Analysis of Work Incentives

Hours of leisure per month

Inco

me

per m

onth

(= e

arni

ngs

+ tr

ansf

ers)

0 T

D

P

F

G

$338

RP1

Budget constraint with t = 100%

S

0 hours of work

selected

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Analysis of Work Incentives

Hours of leisure per month

Inco

me

per m

onth

(= e

arni

ngs

+ tr

ansf

ers)

0 T

D

P

M

R

E2

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Hours worked

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

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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

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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 PoorEarned Income Tax Credit

2012 for a single parent with two children13-13

Other Benefit Programs for the PoorEarned 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

Hours of leisure per year

Inco

me

per y

ear

0 T

D

M

N

R

S

X

Z

$1,000

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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

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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

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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

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Other Benefit Programs for the PoorPrograms 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

13-22

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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