© Terrel Gallaway
Data & Charts from US Census unless otherwise noted
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© Terrel Gallaway
Data & Charts from US Census unless otherwise noted
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© Terrel Gallaway
Data & Charts from US Census unless otherwise noted
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© Terrel Gallaway
Data & Charts from US Census unless otherwise noted
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Child Poverty
Source US Census, Joint Center for Poverty Research
© Terrel Gallaway
Data & Charts from US Census unless otherwise noted
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© Terrel Gallaway
Data & Charts from US Census unless otherwise noted
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Who is poor?
Working & non-working
 Urban & Rural
 Blacks
 Hispanics
 Single Moms
 Children
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Data & Charts from US Census unless otherwise noted
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Limits to Poverty Statistics

Income measured  Looks at annual, not
as cash receipts,
lifetime income
ignores in-kind
 Most of us are poorer
transfers and
and richer at some
other, imputed
point in our lives
rent, etc.
 Units of observation are
somewhat ambiguous
 Often reported as
before tax and
 How do you compare 2
transfers
single people to 2
married people to 2
cohabitating people?
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Data & Charts from US Census unless otherwise noted
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Rationales for Income Redistribution:
Simple Utilitarianism
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Assume a additive, utilitarian social welfare
function W = U1 + U2 + … + UN
 Also assume: identical utility functions,
diminishing marginal utility of income, total
income is not affected by redistribution
 Then, while taking from a rich person
decreases utility and thereby SWF, giving that
income to a poor person increases their utility
(and SWF) by a greater amount.
 Poor value the income more and so SWF
increases as they get a larger share, see graph
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Data & Charts from US Census unless otherwise noted
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Rationales for Income Redistribution:
Rawls
 Maximin criterion W = min(U1, U2…UN)
 Goal is to elevate the poorest person
 Based on John Rawl’s ethical premise that, a person in
the original position, behind a veil of ignorance, would
choose such a distribution
 If you didn’t know into what family you’d be born, you’d want to
make sure their were no families living on the street eating
garbage
 Departures from perfect equality are okay as long as
they elevate the lot of the poorest person
 Assumes strict risk aversion
 Help many if it increased inequality?
© Terrel Gallaway
Data & Charts from US Census unless otherwise noted
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Rationales for Income Redistribution:
Public Good Argument
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Income redistribution, and acts of charity, can be
viewed as public goods
e.g. Many people can benefit when housing is
provided to the homeless (for reasons including
aesthetics, feelings
perceptions
Rationalesof
forguilt,
Income
Redistribution: of safety,
nuisance factor)
Simple Utilitarianism
Charity is underprovided because of the free rider
problem
Government can use it’s coercive power to overcome
the free rider problem
Unlike other arguments, this one rests on Pareto
Improvements
© Terrel Gallaway
Data & Charts from US Census unless otherwise noted
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Rationales for Income Redistribution:
Non-Individualistic Views

Some believe inequality per se is a bad thing,
something to be minimized
 Plato argued the income of the rich should be
no more than four times that of the poor
Rationales for Income Redistribution:
Rawls
 Others desire complete
equality
 Commodity Egalitarianism (e.g. Tobin) argues
some specific goods should be available to all.

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e.g. Basic food, shelter, clothing, education,
medical care
How much?
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Data & Charts from US Census unless otherwise noted
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Other Issues

Relative Price Effects: Government spending on housing
for the poor, for example, can raise it’s price, as well as the
wages of construction workers.
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Difficult to measure distributional impact of government
expenditures on goods that are consumed jointly (public
goods)
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The poor aren't the only ones helped, and they are not likely
helped by the full value of the expenditure
Are benefits of roads a function of family size, income, or miles
traveled, Is it regressive or progressive?
In-kind transfers are often worth less to the recipient than
the cost of the good because. A smaller amount of cash
may very well do more good because it gives the recipient
greater flexibility.
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Data & Charts from US Census unless otherwise noted
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Valuing In-Kind Transfers

Transfer lets them buy more of one good (cheese), than
at each previous bundle of goods.
 However, it does not raise the maximum amount of all
other goods that can be consumed.
 This makes the budget constraint kinked
 Constrains their ability to choose the exact mix that is
best for them
 In-kind transfers are never better than money, money is
often better than in-kind transfers.
 i.e., It is likely that you could increase utility by just as
much, or more, but at less expense, by using cash.
 Greater flexibility.
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Data & Charts from US Census unless otherwise noted
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Valuing In-Kind Transfers
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Data & Charts from US Census unless otherwise noted
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Expenditure Programs
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Data & Charts from US Census unless otherwise noted
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Expenditure Programs
Table 8.1 shows that welfare spending is
a shared expense between the federal
and state/local governments.
 Subsidized medical care (mainly
Medicaid) exceeded $215 billion in 2000.
 Cash assistance (including the Earned
Income Tax Credit) exceeded $91 billion
in 2000.
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© Terrel Gallaway
Data & Charts from US Census unless otherwise noted
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AFDC
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Started 1935, Gutted 1996
Many argued it decreased work incentives
May do so, look at indifference curves &budget constraint flowing
from a time endowment. (leisure, income)
Kinked, budget constraint, not likely to decrease leisure over
horizontal part of BC
Welfare dependence
25% of women who received AFDC stayed on it 10 years or more
Doesn’t mean they don’t want to work, could mean options remain
poor
Some argue it hurts the family structure
Between 60s & 80s, WF benefits decreased in real terms while the
proportion of children not living w/ 2 parents continued to increase
No demonstrated connection between WF & family structure
(including # of children, there is however links between affluence &
small families & between education & small families)
© Terrel Gallaway
Data & Charts from US Census unless otherwise noted
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