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