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Anti-poverty Income Transfers in the U.S.: A Framework for the Evaluation of Policy Reforms

Listed author(s):
  • Salvador Ortigueira

    (Department of Economics, University of Miami)

  • Nawid Siassi

    (Department of Economics, University of Konstanz, Universit¨atsstrasse)

We develop a dynamic model of labor supply, consumption, savings and marriage decisions to study the behavioral responses of low-income workers to anti-poverty income transfers in the U.S. The model is calibrated to match moments from a sample of non-college-educated workers with children drawn from the 2014 Annual Social and Economic Supplement. The categorical, asset and income eligibility criteria of the transfer programs, along with the income and payroll taxes, yield complex budget constraints and introduce a web of interactions whose effects we identify and measure. We examine the workers' behavioral responses across the model's equilibrium distribution over living arrangements, labor productivities, wealth and number of children. Then we use the model to assess the effects of three recent proposals to reform the U.S. tax-transfer system, including the "21st Century Worker Tax Cut Act" and the "Tax Reform Act of 2014". A core objective of these proposals is the mitigation of the disincentives introduced by the Earned Income Tax Credit to married mothers' labor market participation.

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File URL: http://bus.miami.edu/_assets/files/repec/WP2016-04.pdf
File Function: First version, 2016
Download Restriction: no

Paper provided by University of Miami, Department of Economics in its series Working Papers with number 2016-04.

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Date of creation: 29 Apr 2016
Handle: RePEc:mia:wpaper:2016-04
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  1. Chris Herbst, 2011. "The Impact of the Earned Income Tax Credit on Marriage and Divorce: Evidence from Flow Data," Population Research and Policy Review, Springer;Southern Demographic Association (SDA), vol. 30(1), pages 101-128, February.
  2. Marc K. Chan, 2013. "A Dynamic Model of Welfare Reform," Econometrica, Econometric Society, vol. 81(3), pages 941-1001, May.
  3. Mickey Hepner & W. Robert Reed, 2004. "The Effect of Welfare on Work and Marriage: A View from the States," Cato Journal, Cato Journal, Cato Institute, vol. 24(3), pages 349-370, Fall.
  4. Keane, Michael & Moffitt, Robert, 1998. "A Structural Model of Multiple Welfare Program Participation and Labor Supply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 553-589, August.
  5. Gregory Acs & Sandi Nelson, 2004. "Changes in living arrangements during the late 1990s: Do welfare policies matter?," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 23(2), pages 273-290.
  6. Hoynes, Hilary Williamson & Schanzenbach, Diane Whitmore, 2012. "Work incentives and the Food Stamp Program," Journal of Public Economics, Elsevier, vol. 96(1), pages 151-162.
  7. Christopher A. Swann, 2005. "Welfare Reform When Recipients Are Forward-Looking," Journal of Human Resources, University of Wisconsin Press, vol. 40(1).
  8. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
  9. James Alm & Stacy Dickert-Conlin & Leslie A. Whittington, 1999. "Policy Watch: The Marriage Penalty," Journal of Economic Perspectives, American Economic Association, vol. 13(3), pages 193-204, Summer.
  10. Jesse Rothstein, 2005. "The Mid-1990s EITC Expansion: Aggregate Labor Supply Effects and Economic Incidence," Working Papers 883, Princeton University, Department of Economics, Industrial Relations Section..
  11. Raj Chetty & John N. Friedman & Emmanuel Saez, 2013. "Using Differences in Knowledge across Neighborhoods to Uncover the Impacts of the EITC on Earnings," American Economic Review, American Economic Association, vol. 103(7), pages 2683-2721, December.
  12. Emmanuel Saez, 2002. "Optimal Income Transfer Programs: Intensive versus Extensive Labor Supply Responses," The Quarterly Journal of Economics, Oxford University Press, vol. 117(3), pages 1039-1073.
  13. Marianne P. Bitler & Jonah B. Gelbach & Hilary W. Hoynes, 2006. "Welfare Reform and Children's Living Arrangements," Journal of Human Resources, University of Wisconsin Press, vol. 41(1).
  14. Dan T. Rosenbaum, 2000. "Taxes, the Earned Income Tax Credit, and Marital Status," JCPR Working Papers 177, Northwestern University/University of Chicago Joint Center for Poverty Research.
  15. repec:cto:journl:v:24:y:2004:i:3:p: is not listed on IDEAS
  16. Jesse Rothstein, 2010. "Is the EITC as Good as an NIT? Conditional Cash Transfers and Tax Incidence," American Economic Journal: Economic Policy, American Economic Association, vol. 2(1), pages 177-208, February.
  17. Eissa, Nada & Hoynes, Hilary Williamson, 2004. "Taxes and the labor market participation of married couples: the earned income tax credit," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 1931-1958, August.
  18. Jesse Rothstein, 2005. "The Mid-1990s EITC Expansion: Aggregate Labor Supply Effects and Economic Incidence," Working Papers 883, Princeton University, Department of Economics, Industrial Relations Section..
  19. Lin, Emily Y. & Tong, Patricia K., 2012. "Marriage and Taxes: What Can We Learn From Tax Returns Filed by Cohabiting Couples?," National Tax Journal, National Tax Association, vol. 65(4), pages 807-826, December.
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