CHAPTER 13

EXPENDITURE
PROGRAMS FOR
THE POOR

McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
A Quick Look at Welfare Spending
 Means-tested Program Federal State and Local

 Cash versus in-kind Medical care $163.8 $118.7

assistance Cash aid

Food benefits
82.4
36.8
19.7
2.5

Anti-poverty impact
Housing benefits 34.8 0.7

Education 28.8 1.7
of non-means-tested Services 17.5 4.7

programs Jobs/training 6.9 0.9

Energy aid 2.0 0.1

Source: Burke [2003, p. 3]. Figures are for 2002.

13-2
TANF
 Aid to Families with Dependent Children
(1935-96)
 TANF-Temporary Assistance for Needy
Families (1996- )
 No entitlement
 Time limits
 Work requirement
 Block grants to states
 Benefit reduction rates
13-3
Work Incentives
The Basic Trade-offs
G – basic grant if not B = G – tE
working
B = 0 if E = G/t
t – rate at which grant
reduced when recipient
earns money
B – benefit received

13-4
Analysis of Work Incentives
Income per month

D
|Slope| = w

Time
Endowment 2w b

w*
a
0 T Hours of leisure per month
13-5
Analysis of Work Incentives
Income per month

D
|Slope| = w

E1
G iii
ii
Income Leisure Work
i

0 F T Hours of leisure per month

13-6
Analysis of Work Incentives
Income per month (= earnings + transfers)

D
|Slope| = w

|Slope| = 3/4w
S
G

HoursHours Q
before after
TANFTANF $100

0 V F K T Hours of leisure per month

13-7
Analysis of Work Incentives
Income per month (= earnings + transfers)

Budget constraint with t = 100%

0 hours of
work
selected
P1 P
S
R

G
$338

0 F T Hours of leisure per month

13-8
Analysis of Work Incentives
Income per month (= earnings + transfers)

E2

P
R

Hours worked

0 M T Hours of leisure per month

13-9
Work Requirements
 Workfare
 TANF
 Mandated work

13-10
Time Limits
 Lifetime
 Per spell of welfare

13-11
Family Structure
 Marriage
 Childbearing

13-12
National versus State Administration
 Race to the Bottom
 State experimentation

13-13
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
Supplemental Security Income
 SSI versus conventional welfare
 Uniform minimum federal guarantee
 Benefit levels
 Work incentives

13-16
Medicaid
 How Medicaid works
 Crowding Out
 The Medicaid Notch
 Medicaid and Health

13-17
The Medicaid Notch
Income per year

Z S
N

$1,000

0 X T Hours of leisure per year

13-18
Unemployment Insurance
 Why does government insure against
unemployment?
 Adverse selection
 Moral hazard
 Benefits
 Gross replacement rate
 Financing
 Experience rated
 Effects on Unemployment

13-19
Food Stamps and Child Nutrition
 How food stamps work
 Foods stamps as an in-kind transfer
 Participation rates

13-20
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

13-21
Programs to Enhance Earnings
 Education
 Head Start
 Employment and Training

13-22
Overview
Figure 13.10: Estimated effective marginal tax rates for a one-parent, two-child household residing in Wisconsin (2000)

100%

80%
Marginal Tax Rate

60%

40%

20%

0%

-20%

-40%

$30,000

$45,000
$10,000

$15,000

$20,000

$25,000

$35,000

$40,000

$50,000

$55,000
$5,000
$0

Annual Earnings

Source: Holt [2005, Part D, Figure 1].

13-23
New Ideas
 Replace current hodgepodge with single cash
assistance program
 Benefit levels
 Faith-based social services

13-24