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Unformatted text preview: Reducing the moral hazard of welfare Are there ways to minimize disincentive effects of welfare systems? (other than reforms previously discussed) #1) Make welfare available only to low-income single mothers as opposed to all low- income women It is more likely that a woman would opt to not work so she could take up welfare benefits than it is that a woman would opt to become a single mother so she could take up welfare benefits. That welfare might encourage single motherhood is still a concern to policymakers. Is it likely that a woman will become a single mother just to receive welfare benefits? empirical evidence suggests it is unlikely •time series evidence (Figure 17.5)- single motherhood rose despite decline in real welfare benefits •studies compare rates of single motherhood in states that raise their benefits relative to other states where benefits are constant or falling- find no effect or very small effect “Despite the general consensus on this point in the empirical literature on cash welfare programs, the supposed negative effects of cash welfare on the formation of stable families remains a major source of opposition to cash welfare among policy makers.” Food Stamps •in-kind welfare program (receive goods instead of money) •$27 billion in 2004 •receive TANF, SSI (cash welfare to aged, blind, and disabled)- automatically eligible •otherwise cash income is primary eligibility determinant •household income must be below 130% of poverty line •amount of food stamps benefits falls as income rises Food Stamps Budget Constraint (a) Every month, Mary spends all her income on food and clothes. Her income is $60, the price of one unit of food is $2, and the price of one article of clothing is $2. of one unit of food is $2, and the price of one article of clothing is $2....
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- Spring '07