THE EFFECTIVENESS OF MINIMUM-WAGE INCREASES IN REDUCING POVERTY: PAST, PRESENT, AND FUTURE

Extending the work of Card and Krueger, we find minimum-wage increases (1988–2003) did not affect poverty rates overall, or among the working poor or among single mothers. Despite employment growth among single mothers, most gainers lived in nonpoor families and most working poor already had wages above the proposed minimums. Simulating a new federal minimum wage of $7.25 per hour, we find 87% of workers who benefit live in nonpoor families. Poor single mothers receive 3.8% of all benefits. Expanding the Earned Income Tax Credit would far more effectively reduce poverty, especially for single mothers. ( JEL J21, J31, J38)     

A welfare reform based on help for working parents

The Help for Working Parents Plan-developed by Dr. Heidi Hartmann and Dr. Barbara Bergmann in collaboration with the Economists' Policy Group for Women's Issues, which they co-chair – offers an innovative welfare reform program that encouragesjob holding, and sustains working parents and their children in decency. The HWP provides benefits to both single- and dual-parent households, to families who are under the poverty line and to those who waver along it. Increased child care and health care benefits, food stamps, the Earned Income Tax Credit, and housing assistance are the critical components of the HWP plan – elements which will afford low-wage workers the opportunity to attain an above-poverty standard of living. It also provides a low-cash fallback option to parents who do not work for pay or are unemployed. Bergmann and Hartmann estimate that 60 percent of welfare recipients would work if the HWP plan were implemented.     

The Earned Income Tax Credit: Targeting the poor but crowding out wealth

This paper quantifies the individual, aggregate and welfare effects of the US Earned Income Tax Credit (EITC). In particular, we analyze the labour supply and saving responses to changes in tax credit generosity and their implications for prices and welfare. Our results show that the EITC is a subsidy on labour income and a tax on savings. An increase in EITC generosity raises labour force participation, reduces savings for many and provides insurance to working poor households. The EITC reduces earnings inequality but increases the skill premium and wealth inequality. A 10% increase in tax credit generosity increases welfare by 0.31% and benefits the majority of the population.     

Re-examining export-led growth hypothesis: a multivariate cointegration analysis for India

Objectives of the 1996 overhaul of the US welfare system included reducing dependency, raising employment and de-incentivizing out-of-wedlock fertility. Using public use state-level panel data from 1990 to 2005, I analyse how state implementation of welfare reform simultaneously affects the caseload, employment and out-of-wedlock births (henceforth, Temporary Assistance for Needy Families (TANF) objectives). Because endogeneity and simultaneity could not be rejected, I use Three-Stage Least Squares (3SLS) method. Results indicated that most of the steep decline in the caseload is attributed to welfare reform, while the economy's overall effect paled in comparison. However, lagged and contemporaneous unemployment individually ranked second and third behind the Hispanic share of state population. The conservative tilt over the period studied ranked forth, followed in declining order by full family sanctions, Earned Income Tax Credit (EITC) payments, time limits (lagged by length), access to abortion clinics, lump-sum TANF diversion payments, and TANF benefit payments. Findings also suggest that policy does not always work as intended: caseloads are found to be higher in states that have highly regarded family formation and job retention TANF programs; and EITC payments are associated with lower not higher caseloads. The most compelling finding in this study is that low-income families likely turn first to unemployment insurance and then to TANF assistance.     

Electronic filing,tax preparers and participation in the Earned Income Tax Credit

In 2002 more than 18 million low-income individual taxpayers received the Earned Income Tax Credit (EITC). Despite its size, non-participation in this program is a concern and substantial effort is devoted by the IRS, local governments and many non-profits to address it. Using variation across states in the introduction of state electronic filing programs, we show that the introduction of electronic filing had a significant effect on participation in the EITC. Our results are robust to accounting for other welfare, EITC and IRS reforms introduced during the same period. We speculate that the impact of this policy change on the tax preparation industry played an important role in increasing participation.     

INCOME INSTABILITY AND THE RESPONSE OF THE SAFETY NET

This paper examines the response of safety net transfer and tax programs to earnings and income shocks across recessions since the early 1980s. Safety net programs in the United States are designed to dampen economic instability and maintain basic needs for families. Such programs, including TANF, SNAP (food stamps), and the Earned Income Tax Credit (EITC), have been tested during and between recessions of the past 30 years, including the recent 2007–2009 Great Recession. I use matched data in the March Current Population Survey (CPS) from 1980 to 2012 to estimate pre‐ and post‐transfer income instability over the 1980s, 1990s, and 2000s, as well as across recessions. The results are disaggregated by family structure, race, income, and education. Transfer programs are associated with lowered instability levels and flatter trend growth from 1980 to 2012 among socioeconomically disadvantaged subgroups, while the tax system reduces income instability for families in the top 40th percentile of the income distribution. Although the largest instability reductions occur among the poor, since 1980 the safety net appears less responsive to instability for the bottom income quintile, female‐headed families, and black families. (JEL I38, J63)     

Expanding New York State's Earned Income Tax Credit Programme: the effect on work,income and poverty

Given its favourable employment incentives and ability to target the working poor, the Earned Income Tax Credit (EITC) has become the primary antipoverty programme at both the federal and state levels. However, when evaluating the effect of EITC programmes on income and poverty, governments generally calculate the effect using simple accounting, where the value of the state or federal EITC benefit is added to a person's income. These calculations omit the behavioural incentives created by the existence of these programmes, the corresponding effect on labour supply and hours worked, and therefore the actual effect on income and poverty. This article simulates the full effect of an expansion of the New York State EITC benefit on employment, hours worked, income, poverty and programme expenditures. These results are then compared to those omitting labour supply effects. Relative to estimates excluding labour supply effects, the preferred behavioural results show that an expansion of the New York State EITC increases employment by an additional 14?244 persons, labour earnings by an additional $95.8 million, family income by an additional $84.5 million, decreases poverty by an additional 56?576 persons and increases costs to the State by $29.7 million.     

Subsidies on low-skilled workers’ social security contributions: the case of Belgium

In recent decades, many “Making Work Pay” policies have been implemented in OECD countries. These policies aim at improving the financial incentives for work, while maintaining high levels of social protection. Examples include the Earned Income Tax Credit in the USA and the Working Families’ Tax Credit in the UK. While these policies are proven to be quite effective with respect to poverty alleviation, many worry that they may discourage labor supply on the intensive margin. We consider an alternative measure implemented in Belgium: the Workbonus, which subsidizes social security contributions for low-skilled workers. This program differs from other measures in that the eligibility and the level of the subsidy are based on full-time equivalent earnings. The instrument therefore distinguishes between low skill and low effort and avoids the above-mentioned disincentive effect. We assess the effects of the Workbonus on labor supply using a particular discrete-choice labor supply model, in which individuals are assumed to choose among jobs belonging to individual-specific latent choice sets. In particular, we compare the Workbonus with a tax credit system temporarily implemented in Belgium in 2001–2004. Results show that both measures have a positive impact on labor supply. However, the Workbonus is more efficient in terms of cost per additional full-time equivalent position created and avoids the “part-time trap” implicit in the tax credit system.     

Marx,Veblen and Contemporary Institutional Political Economy : Henry on O'Hara

Welfare was reformed significantly in 1996, and the Earned Income Tax Credit (EITC) was expanded substantially during the last decade. In the wake of these events, welfare rolls have shrunk dramatically and employment among the poor has increased, leading many to conclude that these policies have achieved important equity and efficiency goals. It is argued here that these conclusions are too strong. The work requirements and time limits of welfare reform create equity outcomes that are dubious and leave the potential for inefficiencies in the allocation of labor. The EITC excludes almost half of the poor population under age 65, rewards poorer working families less well than it does less poor working families, and provides a sizable work disincentive for a large proportion of its recipients. It is shown here that the poor are not homogeneous. Specifically, the very poor have a much higher incidence of physical and other disabilities. The ability to work varies substantially with income among the poor. There is a case to be made for a much more straightforward form of redistribution, such as the Basic Income Guarantee (BIG). It is quite possible that a BIG would accomplish goals of equity and efficiency more fully than the current mosaic of redistributive programs.     

Cash-on-hand and demand for credit

Subprime consumers often use small-dollar credit products, such as payday loans, to meet short-term financial needs over pay cycles. However, relatively little is known about the income sensitivity of demand for credit in this market. This paper provides a causal estimate of the effect of tax rebates on the demand for small-dollar credit, using a unique proprietary loan-level dataset. Identification relies on variation in state Earned Income Tax Credit (EITC) generosity for areas within the same commuting zones that span state borders. The results show that a $100 increase in EITC benefits leads to an 8.3% reduction in the number of loan applications and a 6.6% reduction in the number of borrowers. This could translate into sizable reductions in loan volume and savings in financial charges. More broadly, the results suggest that public programs with income benefits could help recipients with consumption smoothing in the presence of credit market frictions.     

The Effects of Wealth and Income on Subjective Well‐Being and Ill‐Being*

The accepted view among psychologists and, increasingly, economists is that household income has statistically significant but only small effects on measures of subjective well‐being. Income, however, is clearly an imperfect measure of the economic circumstances of households. Using data drawn from the 2002 wave of the Household, Income and Labour Dynamics in Australia (HILDA) Survey, this paper demonstrates that wealth, which can be viewed as providing a degree of economic security, is at least as important to well‐being and ill‐being as income.     

MEASURING NON‐ECONOMIC WELL‐BEING ACHIEVEMENT

Income per capita and most widely reported, non‐ or non‐exclusively income based human well‐being indicators are highly correlated among countries. Yet many countries exhibit higher achievement in the latter than predicted by the former. The reverse is true for many other countries. This paper commences by extracting the inter‐country variation in a composite of various widely‐reported, non‐income‐based well‐being indices not accounted for by variations in income pre capita. This extraction is interpreted inter alia as a measure of non‐economic well‐being. The paper then looks at correlations between this extraction and a number of new or less widely‐used well‐being measures, in an attempt to find the measure that best captures these achievements. A number of indicators are examined, including measures of poverty, inequality, health status, education status, gender bias, empowerment, governance and subjective well‐being.     

Fiscal policy under a minimum‐time objective

In an endogenous growth model, we characterize the fiscal policy driven by a minimum‐time objective of economic development. We find that in equilibrium government should levy the highest possible consumption taxes, reduce public expenditures to the lowest possible level, and keep labor income tax rate and capital income tax rate satisfy a substitution relationship at the balanced budget constraint. We also identify the condition under which income tax rate should be set to zero. We further find that the equilibrium fiscal policy is equivalent to the growth‐maximizing fiscal policy, whereas it generally deviates from the welfare‐maximizing fiscal policy. We hence identify a circumstance where setting the policy goal of reaching an economic‐performance target as soon as possible cannot be justified in the sense of maximizing the welfare of households.     

ECONOMY‐WIDE EFFECTS OF REDUCING ILLEGAL IMMIGRANTS IN U.S. EMPLOYMENT

We use an economy‐wide model to analyze the effects of three broad programs to reduce illegal immigrants in U.S. employment: tighter border security; taxes on employers; and vigorous prosecution of employers. After looking at macroeconomic industry and occupational effects, we decompose the welfare effect for legal residents into six parts covering changes in: producer surplus and illegal wage rates; skilled employment opportunities for natives; aggregate capital; aggregate legal employment; the terms of trade; and public expenditure. The type of program matters. Our analysis suggests a prima facie case in favor of taxes on employers. (JEL J61, C68)     

Lessons from the recent economic crisis: the Australian household stimulus package

This paper provides an impact evaluation analysis of the 2009 Australian Household Stimulus Package, which was composed by three main cash payments: the Back to School Bonus, the Single Income Family Bonus and the Tax Bonus for Working Australians. Using panel data from the 2008 and 2009 HILDA surveys, the results show that these cash payments reduced the risk of poverty and stimulated consumption expenditure. Nonetheless, only the Back to School Bonus and the Single Income Family Bonus were really important in achieving these goals, while the Tax Bonus for Working Australians did not contribute to stimulate consumption and failed to reduce the risk of poverty. Thus, the analysis confirms the crucial role of governments to protect the most vulnerable groups avoiding a dramatic deterioration of social outcomes and favoring a fast economic recovery when interventions are timely and well-targeted.     

Wage subsidies, work incentives, and the reform of the Austrian welfare system

We analyze the employment and income effects of a needs-based minimum benefit system (“Bedarfsorientierte Mindestsicherung”) which has recently been introduced in Austria. The aim of this reform was to reduce poverty as well as to increase work incentives for recipients of social assistance. On the basis of a behavioral microsimulation model we show that this new system slightly increases employment but reduces incomes for the poorest households remaining unemployed. As an alternative, we analyze a budgetary neutral reform proposal which reduces financial incentives for marginal employment and provides a wage subsidy rewarding working longer hours. This alternative reform would yield larger positive employment effects, but more households would suffer from income losses. Overall, income inequality and poverty are affected little, however, both under the new social welfare system and the alternative reform proposal.     

Informality and Long‐Run Growth

One of the most salient features of developing economies is the existence of a large informal sector. In this paper, we use quantitative theory to study the dynamic implications of informality on wage inequality, human capital accumulation, child labor, and long‐run growth. Our model can generate transitory informality equilibria or informality‐induced poverty traps. Its calibration reveals that the case for the poverty‐trap hypothesis arises: although informality serves to protect low‐skilled workers from extreme poverty in the short run, it prevents income convergence between developed and developing nations in the long run. Then we examine the effectiveness of different development policies to exit the poverty trap. Our numerical experiments show that using means‐tested education subsidies is the most cost‐effective single policy option. However, for longer time horizons, or as the economy gets closer to the poverty trap threshold, combining means‐tested education and wage subsidies is even more effective.     

SHORT‐RUN AND LONG‐RUN IMPLICATIONS OF ENVIRONMENTAL REGULATION ON FINANCIAL PERFORMANCE

Opposing theoretical arguments exist regarding the effect of environmental regulation on financial performance. Some studies argue that environmental regulation constrains firms' abilities to exploit revenue‐enhancing or cost‐reducing opportunities. Other studies, representing the Porter hypothesis, argue that environmental regulation motivates firms to innovate, which ultimately improves financial performance. Although much of the debate focuses on long‐run effects, there are also important short‐run effects. This study provides empirical evidence regarding the short‐run and long‐run effects of Clean Water Act regulation on financial performance. To generate this evidence, we examine the effect of permitted wastewater discharge limits, on the return on sales, using panel data on publicly owned firms in the chemical manufacturing industries. We find that Clean Water Act regulation improves financial performance in both the short run and the long run with a stronger effect in the long run. These results suggest that some net benefits may be realized during a short‐run transition to comply with a tighter permitted discharge limit, with additional benefits accruing to the firm in the long run because the firm has more time to innovate. (JEL K23, L25, L51, L65, Q52)     

Capital adjustment cost and inconsistency in income‐based dynamic panel models with fixed effects

After the seminal work of Nickell (1981), a vast literature demonstrates the inconsistency of ‘conditional convergence’ estimator in income‐based dynamic panel models with fixed effects when the time horizon (T) is short but the sample of countries (N) is large. Less attention is given to the economic root of inconsistency of the fixed effects estimator when T is also large. Using a variant of the Ramsey growth model with long‐run adjustment cost of capital, we demonstrate that the fixed effects estimator of such models could be inconsistent when T is large. This inconsistency arises because of the long‐run adjustment cost of capital which gives rise to a negative moving average coefficient in the error term. Income convergence will be thus overestimated. We theoretically characterize the order of this inconsistency. Our Monte Carlo simulation demonstrates that the size of the bias is substantial and it is greater in economies with higher capital adjustment costs. We show that the use of instrumental variables that take into account the presence of the negative moving average term in the error will overcome this bias.     

Public Sector Pricing,Capital Mobility and National Income: A Two‐Sector General‐Equilibrium Analysis

Abstract This paper examines the resource allocation and income effects of public‐sector pricing. During the short run, raising public‐sector prices leads to a worsening in public‐sector efficiency, causing a decline in GNP. In the intermediate run, the policy begins to improve public‐sector efficiency and, hence, increases GNP. At the outset of the transition to a steady state, the pricing policy continues to improve efficiency. Nevertheless, efficiency and GNP remain invariant across steady states in the long‐run equilibrium. The implications of the pricing policy are also discussed.