Economic Effects of Means-Tested Transfers in the U.S.

Abstract

The system of means-tested transfers in the U.S. has evolved in important ways over the last decade, with significant expansions of Medicaid, the Earned Income Tax Credit, and the Supplemental Security Income program, and with significant contraction in Aid to Families with Dependent Children, now titled the Temporary Assistance for Needy Families program. To determine where we are in our understanding of each of these programs, as well as the other major programs in the system of means-tested transfers, a volume is under preparation by the National Bureau of Economic Research that surveys the current structure and historical evolution of each of these programs and that synthesizes the results of the research that has been conducted on their economic effects. In addition to the AFDC-TANF, Medicaid, EITC, and SSI programs, reviews have been conducted for the Food Stamp program and for housing, child care, job training, and child support programs. This paper summarizes the results of those reviews and highlights the large number of important findings from existing research. Reform of the system of means-tested transfers in the U.S. continues to be an important topic for public policy as well as an area of continued research by economists. Policy and research interest have been kept particularly high by significant transformations in the means-tested transfer system over the last decade. The most important structural changes have taken place in three programs. One is the Aid to Families with Dependent Children (AFDC) program--now named the Temporary Assistance for Needy Families (TANF) program--whose generosity has been significantly reduced and whose eligibility conditions have been restricted to those who can and are willing to comply with work requirements and other new rules. A second is the Medicaid program, which has been significantly expanded to cover more families and children off the AFDC-TANF program. The third is the Earned Income Tax Credit (EITC), whose benefits have greatly expanded and whose expenditures now exceed those in the traditional AFDC-TANF program. A fourth program which has undergone significant expenditure and caseload expansion, although without major structural change, is the Supplemental Security Income (SSI) program. To determine where we stand in our understanding of each of these programs, as well as the other major programs in the system of means-tested transfers, a volume is under preparation by the National Bureau of Economic Research that surveys the current structure and historical evolution of each of these programs and that synthesizes the results of the research that has been conducted on their economic effects (Moffitt, forthcoming). In addition to the AFDC-TANF, Medicaid, EITC, and SSI programs, reviews have been conducted for the Food Stamp program and for housing, child care, job training, and child support programs. This paper summarizes the results of those reviews. The paper first provides a brief background discussion of trends in expenditures on means-tested transfers as a whole. It then goes on to discuss each of the major programs individually.