Is there a case for in-kind income transfers?: an analysis of the low-income housing and food stamp programs

Abstract

The primary objective of this research was to assess the equity and efficiency of in-kind income transfers. The analytical framework employed incorporated key concepts of the utility interdependence paradigm from economic welfare theory. This paradigm views income transfers as social goods and suggests that social as well as private benefits may be derived from the redistribution of income. This study attempted to assess some of the empirical implications of the utility interdependence argument through the investigation of the low-income housing and Food Stamp programs in Multnomah County, Oregon for FY 1973. Data were drawn from agency files, published statistics and documents, interviews with program administrators, and a survey of the records of 498 Non-Public Assistance Food stamp households. The private and social benefits and costs of the programs were estimated. The program participation rates and the socio-economic characteristics of recipient households were ascertained. Particular attention was devoted to an evaluaLion of the efficacy of in-kind transfers in inducing substitution effects or producing social benefits through the alteration of the consumption patterns of the target population. In addition to an economic analysis of in-kind transfers, the political environment of welfare legislation was detailed. The results of this research suggest that in-kind income transfers are an inefficient and inequitable method of redistributing income. All programs investigated were characterized by high administrative costs. The administrative share of the public program budget ranged from 20% in the Food Stamp Program to over 50% in Public Housing. All programs were found to be inequitable in that households with similar socio-economic characteristics did not receive similar benefits. Housing programs discriminate among the equally needy by restricting supply. In the Food Stamp Program, a complex income determination formula, which is used to calculate program benefits, results in a considerable variation in the subsidies provided to households of equivalent size and income. The low-income housing and Food Stamp programs were also found to be ineffective in producing those social benefits which are specifically related to changes in the consumption patterns of the target population as a whole. While housing programs were found to induce substitution effects by furnishing large subsidies to a small number of households, only 5% of the eligible received benefits. Programs which leave the vast majority of the poorly housed untouched were judged unlikely to significantly diminish the external diseconomies presumed to be associated with the housing expenditure patterns of the entire population of eligible.