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Why is the rate of single-parenthood lower in Canada than in the U.S.? A dynamic equilibrium analysis of welfare policies

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  • Nezih Guner
  • John Knowles

Abstract

A critical question in the design of welfare policies is whether to target aid according to household composition, as was done in the U.S. under the Aid to Families with Dependent Children (AFDC) program, or to rely exclusively on means-testing, as in Canada. Restricting aid to single mothers, for instance, has the potential to distort behaviour along three demographic margins: marriage, fertility, and divorce. We contrast the Canadian and the U.S. policies within an equilibrium model of household formation and human capital investment on children. Policy differences we consider are eligibility, dependence of transfers on the number of children, and generosity of transfers. Our simulations indicate that the policy differences can account for the higher rate of single-parenthood in the U.S. They also show that Canadian welfare policy is more effective for fostering human capital accumulation among children from poor families. Interestingly, a majority of agents in our benchmark economy prefers a welfare system that targets single mothers (as the U.S. system does), yet (unlike the U.S. system) does not make transfers dependent on the number of children.

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Bibliographic Info

Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 42 (2009)
Issue (Month): 1 (February)
Pages: 56-89

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Handle: RePEc:cje:issued:v:42:y:2009:i:1:p:56-89

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Cited by:
  1. García-Morán, Eva & Kuehn, Zoe, 2012. "With strings attached: Grandparent-provided child care, fertility, and female labor market outcomes," MPRA Paper 37001, University Library of Munich, Germany.
  2. García-Morán, Eva & Kuehn, Zoe, 2013. "With strings attached: Grandparent-provided child care and female labor market outcomes," MPRA Paper 48953, University Library of Munich, Germany.
  3. Bick, Alexander, 2010. "The quantitative role of child care for female labor force participation and fertility," MPRA Paper 25474, University Library of Munich, Germany.
  4. Stefan Bauernschuster & Rainald Borck, 2012. "The Effect of Child Care on Family Structure: Theory and Evidence," CESifo Working Paper Series 3763, CESifo Group Munich.
  5. Hans Fehr & Daniela Ujhelyiova, 2011. "Fertility, Female Labor Supply, and Family Policy," CESifo Working Paper Series 3455, CESifo Group Munich.

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