Chapter- EXpenditure Programs for the Poor Public economics
1 Chapter 8 – Expenditure Programs for the Poor Public Economics
Quick Look at Welfare Spending “ Welfare” in the United states is a patchwork of dozens of different programs All welfare programs are means-tested only individuals with sufficiently low income are eligible Programs often have other requirements related to family structure and assets
2 Quick Look at Welfare Spending • “Welfare” in the United States is a patchwork of dozens of different programs. • All welfare programs are means-tested – only individuals with sufficiently low income are eligible. • Programs often have other requirements related to family structure and assets
Quick Look at Welfare Spending Spending on welfare programs, as a fraction of gdp has more than double in the past 30 years The role of direct cash assistance has diminished. however. Subsidized health care has grown enormously
3 Quick Look at Welfare Spending • Spending on welfare programs, as a fraction of GDP, has more than double in the past 30 years. • The role of direct cash assistance has diminished, however. Subsidized health care has grown enormously
Table 8.1 Table 8.1 Expenditures on major need-tested programs (billions of dollars) Programn Federal State and local Medical care Sl31.4 S94.3 Cash aid 72.5 19.2 Food benefits 32.2 2.2 Housing benefits 29.3 5.6 Education 19.0 Services 14.2 6.5 Jobs/training 6.2 Energy aid 1.6 0.085 SOURCE: Burke [2001, pp. 7, 8]. Figures are for 2000
Table 8.1
Quick Look at Welfare Spending 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 in2000
5 Quick Look at Welfare Spending • 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
TANE 1935-1996:AFDC Aid to Families with Dependent Children 1996-present: TANF Temporary Assistance for Needy Families Programs are largely targeted toward single parent households with children under 18
6 TANF • 1935-1996: AFDC – Aid to Families with Dependent Children • 1996-present: TANF – Temporary Assistance for Needy Families • Programs are largely targeted toward single parent households with children under 18
AFDC/TANE differences AFDC TANE Open-ended entitlement No“entt| ement”- limited anyone who qualifies gets funding AFDC Time limited for at most 5 No time limits- could be years on program indefinitely ork requirements No work requirements Block grant to states Cost sharing by federal costs to federa and state governments government are not open open ended costs ended State determines benefit States have even more levels subject to broad control of the design of the federal guidelines program High tax rates on earned States have option to lower Income tax rates on earned income
7 AFDC/TANF differences • AFDC – Open-ended entitlement – anyone who qualifies gets AFDC. – No time limits – could be on program indefinitely – No work requirements – Cost sharing by federal and state governments – open ended costs. – State determines benefit levels subject to broad federal guidelines – High tax rates on earned income • TANF – No “entitlement” – limited funding. – Time limited for at most 5 years – Work requirements – Block grant to states – costs to federal government are not open ended. – States have even more control of the design of the program – States have option to lower tax rates on earned income
TANE Benefit reduction rates(also known as tax rates)vary from 33% to 100% 100% tax rate means that if a welfare recipient earns $1 in the labor market, her welfare benefit is reduced by exactly $1
8 TANF • Benefit reduction rates (also known as tax rates) vary from 33% to 100%. – 100% tax rate means that if a welfare recipient earns $1 in the labor market, her welfare benefit is reduced by exactly $1
TANE Welfare grant levels vary tremendously More than cost-of-living differences alone could explain For a 3-person family with no other sources of income, grant was $801 for the family each month in Minnesota $164 for the family each month in Alabama
9 TANF • Welfare grant levels vary tremendously • More than cost-of-living differences alone could explain • For a 3-person family with no other sources of income, grant was: – $801 for the family each month in Minnesota – $164 for the family each month in Alabama
ncome Maintenance and work Incentives Analyzing welfare programs is simply utility maximization subject to a budget constraint The government's welfare program design changes the budget constraint and the economic agent then maximizes utility 10
10 Income Maintenance and Work Incentives • Analyzing welfare programs is simply utility maximization subject to a budget constraint. • The government’s welfare program design changes the budget constraint, and the economic agent then maximizes utility
