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
Employment and training
10.3
8.6
Source:
Spar
[2011,p.9]
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
13-3
Work Incentives
The Basic Trade-offs
B = G – tE
B = 0 if E = G/t
Challenge:
t – rate at which grant
reduced when recipient How to provide an adequate
income support program
earns money
while minimizing work
disincentives?
B – benefit received
G – basic grant if not
working
13-4
Income per month
Analysis of Work Incentives
D
|Slope| = w
c
b
2w
a
0
w
Time endowment
T Hours of leisure per month
13-5
Income per month
Analysis of Work Incentives
D
|Slope| = w
E1
G
iii
Income
ii
Leisure
0
i
F
Work
T
Hours of leisure per month
13-6
Income per month (= earnings + transfers)
Analysis of Work Incentives
D
|Slope| = w
|Slope| = 3/4w
S
Hours before
TANF
Q
$100
0
F
K
T Hours of leisure per month
Hours after TANF
13-7
Income per month (= earnings + transfers)
Analysis of Work Incentives
D
Budget constraint with t = 100%
0 hours of
work
selected
S
R
P1
P
G
$338
0
F
T Hours of leisure per month
13-8
Income per month (= earnings + transfers)
Analysis of Work Incentives
D
E2
P
R
Hours worked
0
M
T
Hours of leisure per month
13-9
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
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 Poor
Earned Income Tax Credit
2012 for a single parent with two children
13-13
Other Benefit Programs for the Poor
Earned 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
Income per year
The Medicaid Notch
M
D
R
S
Z
N
$1,000
0
X
T
Hours of leisure per year
13-17
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
13-18
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
13-19
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
13-20
Other Benefit Programs for the Poor
Programs 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