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Making Work Pay: Changes in Effective Tax Rates and Guarantees in U.S. Transfer Programs, 1983–2002

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  • James P. Ziliak

Abstract

In the 1990s, many states liberalized statutory rules regarding the tax treatment of earned and unearned income for welfare program eligibility and benefit levels. I use quality control data from the AFDC/TANF program over 1983–2002 to document changes in the corresponding effective tax rates and benefit guarantees. After welfare reform I find that effective tax rates fell by 50 percent on earned income and by at least 70 percent on unearned income. States that aggressively reformed their welfare programs, especially those that implemented a stringent sanctions policy on benefits, experienced more rapid reductions in effective tax rates and guarantees.

Suggested Citation

  • James P. Ziliak, 2007. "Making Work Pay: Changes in Effective Tax Rates and Guarantees in U.S. Transfer Programs, 1983–2002," Journal of Human Resources, University of Wisconsin Press, vol. 42(3).
    • Handle: RePEc:uwp:jhriss:v:42:y:2007:i3:p619-642
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    References listed on IDEAS

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    1. Hoynes, Hilary Williamson, 1996. "Welfare Transfers in Two-Parent Families: Labor Supply and Welfare Participation under AFDC-UP," Econometrica, Econometric Society, vol. 64(2), pages 295-332, March.
    2. Fraker, Thomas & Moffitt, Robert, 1988. "The effect of food stamps on labor supply : A bivariate selection model," Journal of Public Economics, Elsevier, vol. 35(1), pages 25-56, February.
    3. Rosenzweig, Mark R & Wolpin, Kenneth I, 1994. "Parental and Public Transfers to Young Women and Their Children," American Economic Review, American Economic Association, vol. 84(5), pages 1195-1212, December.
    4. David T. Ellwood, 1999. "The Impact of the Earned Income Tax Credit and Social Policy Reforms on Work, Marriage, and Living Arrangements," JCPR Working Papers 124, Northwestern University/University of Chicago Joint Center for Poverty Research.
    5. Thomas MaCurdy & David Green & Harry Paarsch, 1990. "Assessing Empirical Approaches for Analyzing Taxes and Labor Supply," Journal of Human Resources, University of Wisconsin Press, vol. 25(3), pages 415-490.
    6. Robert A. Moffitt, 1979. "Cumulative Effective Tax Rates and Guarantees in Low-Income Transfer Programs," Journal of Human Resources, University of Wisconsin Press, vol. 14(1), pages 122-129.
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    8. Thomas Fraker & Robert Moffitt & Douglas Wolf, 1985. "Effective Tax Rates and Guarantees in the AFDC Program, 1967-1982," Journal of Human Resources, University of Wisconsin Press, vol. 20(2), pages 251-263.
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    Cited by:

    1. Jean Knab & Irv Garfinkel & Sara McLanahan & Emily Moiduddin & Cynthia Osborne, 2008. "The Effects of Welfare and Child Support Policies on the Timing and Incidence of Marriage Following a Nonmarital Birth," Working Papers 898, Princeton University, School of Public and International Affairs, Center for Research on Child Wellbeing..
    2. Robert A. Moffitt & Matthew V. Zahn, 2019. "The Marginal Labor Supply Disincentives of Welfare: Evidence from Administrative Barriers to Participation," NBER Working Papers 26028, National Bureau of Economic Research, Inc.
    3. Gunter, Samara, 2013. "State Earned Income Tax Credits and Participation in Regular and Informal Work," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(1), pages 33-62, March.
    4. repec:pri:crcwel:wp07-10-ff is not listed on IDEAS
    5. Melanie Guldi & Lucie Schmidt, 2017. "Taxes, Transfers, and Women’s Labor Supply in the United States," Working Papers 2017-01, University of Central Florida, Department of Economics.
    6. Gunter, Samara, 2013. "State Earned Income Tax Credits and Participation in Regular and Informal Work," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(1), pages 33-62, March.
    7. Samara Gunter, 2013. "Effects of child support pass-through and disregard policies on in-kind child support," Review of Economics of the Household, Springer, vol. 11(2), pages 193-209, June.
    8. Mike Brewer & Jonathan Shaw, 2018. "How Taxes and Welfare Benefits Affect Work Incentives," Fiscal Studies, John Wiley & Sons, vol. 39(1), pages 5-38, March.
    9. Nathan Berg & Todd Gabel, 2013. "Effects of New Welfare Reform Strategies on Welfare Participation: Microdata Estimates from Canada," Working Papers 1304, University of Otago, Department of Economics, revised Feb 2013.
    10. Robert Paul Hartley & Carlos Lamarche & James P. Ziliak, 2022. "Welfare Reform and the Intergenerational Transmission of Dependence," Journal of Political Economy, University of Chicago Press, vol. 130(3), pages 523-565.
    11. repec:pri:crcwel:wp11-03-ff is not listed on IDEAS
    12. Jeremy A. Cook & John Stuart Rabon, 2018. "Maternal investments and child cognitive achievement," Economics Bulletin, AccessEcon, vol. 38(3), pages 1632-1654.
    13. Erik Hembre, 2023. "Examining SNAP and TANF caseload trends, responsiveness, and policies during the COVID‐19 pandemic," Contemporary Economic Policy, Western Economic Association International, vol. 41(2), pages 262-281, April.
    14. Charles J. Courtemanche & James Marton & Aaron Yelowitz, 2019. "Medicaid Coverage across the Income Distribution under the Affordable Care Act," NBER Working Papers 26145, National Bureau of Economic Research, Inc.

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