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Does Benefit Receipt Affect Future Income? An Econometric Explanation

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  • Dean Hyslop

    (Policy Coordination and Development, The Treasury and Department of Economics, UCLA)

Abstract

This paper provides an econometric analysis of the effects of receiving welfare benefits on individuals’ future income, using longitudinal administrative data on individual incomes. After controlling for heterogeneous differences in individual incomes, spurious effects of contemporaneous benefit receipt and possible endogeneity with incomes, there is no systematic evidence of a positive or negative effect of benefit receipt on incomes. The results are generally imprecisely estimated and sensitive to the choice of specification. Also, a simple first-order specification with unobserved heterogeneity provides a reasonable characterisation of individual income dynamics, although formal statistical tests tend to reject this specification as being too parsimonious.

Suggested Citation

  • Dean Hyslop, 2000. "Does Benefit Receipt Affect Future Income? An Econometric Explanation," Treasury Working Paper Series 00/14, New Zealand Treasury.
    • Handle: RePEc:nzt:nztwps:00/14
    as

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    File URL: https://treasury.govt.nz/sites/default/files/2018-01/twp00-14.pdf
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    References listed on IDEAS

    as
    1. Ashenfelter, Orley C, 1978. "Estimating the Effect of Training Programs on Earnings," The Review of Economics and Statistics, MIT Press, vol. 60(1), pages 47-57, February.
    2. Dean R. Hyslop, 1999. "State Dependence, Serial Correlation and Heterogeneity in Intertemporal Labor Force Participation of Married Women," Econometrica, Econometric Society, vol. 67(6), pages 1255-1294, November.
    3. Creedy, J, 1996. "Income Dynamics Over the Life Cycle: New Evidence for New Zealand," Department of Economics - Working Papers Series 511, The University of Melbourne.
    4. Plant, Mark W, 1984. "An Empirical Analysis of Welfare Dependence," American Economic Review, American Economic Association, vol. 74(4), pages 673-684, September.
    5. Kenneth Y. Chay & Dean R. Hyslop, 2014. "Identification and Estimation of Dynamic Binary Response Panel Data Models: Empirical Evidence Using Alternative Approaches," Research in Labor Economics, in: Safety Nets and Benefit Dependence, volume 39, pages 1-39, Emerald Group Publishing Limited.
    6. Beaudry, Paul & DiNardo, John, 1991. "The Effect of Implicit Contracts on the Movement of Wages over the Business Cycle: Evidence from Micro Data," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 665-688, August.
    7. James J. Heckman, 1981. "Heterogeneity and State Dependence," NBER Chapters, in: Studies in Labor Markets, pages 91-140, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Crawford, Ron, 2009. "Variations in earnings growth: evidence from earnings transitions in the NZ Linked Income Survey," ISER Working Paper Series 2009-18, Institute for Social and Economic Research.

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