Poverty Reduction through Federal and State Policy Mechanisms: Variation over Time and across the United States

Abstract

The efficacy of the US antipoverty policy is shaped both by its reliance on categorical sorting and by its decentralized structure. To examine the implications of these features, this study introduces a novel disaggregation of poverty reduction instruments into four mechanisms: federal taxes and federal transfers (centralized) and state taxes and state transfers (decentralized). Using the Current Population Survey’s Annual Social and Economic Supplement data and a sequence-independent decomposition, this analysis assesses the relative effectiveness of the mechanisms at the national level between 1996 and 2016 and across the states in 2016. The study finds that absolute and relative poverty reduction is greater and has increased over time for working-age households with children compared with those without children. We also find cross-state variation in market- and disposable-income poverty and in the poverty reduction attributable to each of the redistributive mechanisms, highlighting the importance of examining poverty and antipoverty policy subnationally.