Tax and spend: the interplay of fiscal and social policy

Karl Scholz and Hsueh-Hsiang Li examine the interplay of fiscal and social policy in the context of antipoverty policy, schooling, disability rolls and unemployment. They examine several potential explanations for the aversion of US policymakers to tax increases, and conclude that there is no obvious answer. The authors provide an overview of five major policies in the United States: antipoverty measures, K–12 education, infrastructure investment, unemployment and disability assistance, and population aging. They explain why poverty rates have changed little over time, even though per-recipient means-tested transfers have risen sharply. First, most of the increase in these antipoverty measures is due to the increasing costs of Medicaid: health insurance primarily for poor mothers, for very young children and for the indigent elderly who need nursing home care. Second, within the nonelderly and nondisabled group, there has been redistribution among low-income families, but it did not significantly affect the proportion of the population living in poverty. Concerning intervention in education, the authors mention that financing of education is the responsibility of state-level governments, whereas the federal government plays a relatively minor role. For this reason, financial and other constraints make progress difficult when trying to overcome the disadvantages related to poverty.