Academic journal article Economic Inquiry

How Inefficient Are Multiple In-Kind Transfers?

Academic journal article Economic Inquiry

How Inefficient Are Multiple In-Kind Transfers?

Article excerpt


The anti-poverty system in the United States is a patchwork of programs: Aid to Families with Dependent Children (AFDC), Medicaid, food stamps, subsidized housing, Medicare, Supplemental Security Income (SSI), to name only the largest components. This patchwork resulted from political conflicts about poverty during the 1960s, when the anomaly of extensive poverty in the midst of American affluence spurred political efforts to alleviate the plight of the poor.

Two widely shared concerns slowed those efforts. First, many worried that giving money to the poor would undermine incentives to work. Second, some worried that the poor would misspend money given to them by government.

Supporters of aid to the poor took two roads to circumvent opponents' concerns.

First, cash grant programs (AFDC and SSI) were targeted for household groups about whose work effort there was the least concern--single-parent households and the elderly.(1) Cash programs for other poor households were put aside. Second, numerous programs, "in-kind programs," were designed with the ostensible purpose of increasing poor households' consumption of specific goods--food, housing, medical care, education--rather than providing those households with increases in general purchasing power. These measures, though very successful in overcoming political obstacles and turning federal resources to the needs of the poor, resulted in the complex patchwork quilt of poverty programs we see today.

Whether aid would induce recipients to stop working was the gravest question raised by critics. To resolve the question, Congress funded a series of ambitious and expensive social experiments, called the income maintenance experiments, designed to measure how much cash grant programs deter work effort.

Additional studies were funded to explore how well "in-kind" programs could meet government's goals for helping the poor. Numerous of these in-kind studies focused on the fact that households value subsidies that restrict their choices less than they would value equally costly unrestricted grants.

All these investigations deepened our understanding of how government programs can and cannot help the poor, but they were limited by their failure to anticipate the complexity of the social welfare system. Almost all these investigations examined one program in isolation from all others, which made sense in the early 1960s when cash grants made up 90 percent of all aid to the poor and public housing was the only extensive in-kind program. But today cash grants make up less than one-third of aid to the poor and extensive in-kind programs offer food, medical insurance, and housing. The income maintenance experiments did not directly address the work incentive effects of in-kind transfers, and analyses that did focus on in-kind programs tended to overlook that many poor people receive several in-kind transfers.

Only studies of the incidence of poverty have consistently attended to the interactions among poverty programs. Browning [1975] first drew attention to the misimpression given by official poverty counts that included only money income during a period when in-kind transfers were growing markedly. Subsequent writers have been careful to account in one way or another for the impact of in-kind transfers on measures of poverty.

This paper examines how multiple program participation in AFDC, Medicaid, food stamps, and subsidized housing affects:

(i) the benefits from programs as viewed by the recipient;

(ii) the efficiency of the programs relative to cash transfers;

(iii) the consumption patterns of in-kind subsidy recipients;

(iv) marginal tax rates faced by recipients;

(v) the incidence of poverty among recipients.

The benefits, efficiency, and consumption effects of individual programs have been studied by many (e.g., Olsen and Barton [1983], DeSalvo [1975], and Murray [1975; 1980] studied housing programs; Clarkson [1976] and Moffitt [1989] analyzed food stamps). …

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