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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
13-3
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
13-4
w
Analysis of Work Incentives
Hours of leisure per month
Inco
me
per m
onth
0 Ta
D|Slope| = w
b
c
2w
13-5
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
13-6
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
13-8
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
13-9
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
13-10
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
13-11
National versus State Administration
• Does State Administration create a Race to the Bottom?
• State Administration allows state experimentation
13-12
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
13-14
Empirical Evidence: The Effect of the Earned Income Tax Credit on Labor Supply
• Labor force participation• Work hours
13-15
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
13-16
The Medicaid Notch
Hours of leisure per year
Inco
me
per y
ear
0 T
D
M
N
R
S
X
Z
$1,000
13-17
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
13-18
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
13-19
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
13-20
Other Benefit Programs for the PoorPrograms to Enhance Earnings
• Education– Head Start
• Employment and Training
13-21
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
13-23