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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.

Suggested Citation

  • Nezih Guner & John Knowles, 2009. "Why is the rate of single-parenthood lower in Canada than in the U.S.? A dynamic equilibrium analysis of welfare policies," Canadian Journal of Economics, Canadian Economics Association, vol. 42(1), pages 56-89, February.
  • 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. Eva Garcia-Moran & Zoe Kuehn, 2017. "With Strings Attached: Grandparent-Provided Child Care and Female Labor Market Outcomes," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 23, pages 80-98, January.
    3. Hans Fehr & Daniela Ujhelyiova, 2013. "Fertility, Female Labor Supply, and Family Policy," German Economic Review, Verein für Socialpolitik, vol. 14(2), pages 138-165, May.
    4. 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.
    5. Doepke, Matthias & Kindermann, Fabian, 2016. "Bargaining over Babies: Theory, Evidence, and Policy Implications," CEPR Discussion Papers 11158, C.E.P.R. Discussion Papers.
    6. Bick, Alexander, 2011. "The quantitative role of child care for female labor force participation and fertility," MPRA Paper 31713, University Library of Munich, Germany.
    7. Doepke, Matthias & Kindermann, Fabian, 2014. "Intrahousehold Decision Making and Fertility," IZA Discussion Papers 8726, Institute for the Study of Labor (IZA).
    8. Stefan Bauernschuster & Rainald Borck, 2012. "The Effect of Child Care on Family Structure: Theory and Evidence," CESifo Working Paper Series 3763, CESifo Group Munich.

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