a dynamic model of welfare reform a dynamic structural model of labor supply welfare participation and food stamp participation is estimated using the 1992 1993 and 1996 panels of the survey of income and program participation details of various policies including welfare time limits work requirements and earned income tax credit eitc are incorporated formally in the budget constraint policy simulations reveal that the economy accounts for half of the increase in the labor supply of female heads of family between 1992 and 1999 a time limit results in a larger efficiency gain than a work requirement or a direct reduction in welfare benefits a reform package can lead to both a reduction in the government expenditure and an improvement in utility the eitc expansion results in a substantial efficiency gain among individuals with the lowest expected wage these individuals are almost unaffected by the economic expansion but their income and utility increase significantly under the reform package

effects of welfare reform on illicit drug use of adult women exploiting changes in welfare policy across states and over time and comparing relevant population subgroups within an econometric difference in differences framework we estimate the effects of welfare reform on adult women s illicit drug use from 1992 to 2002 the period during which welfare reform unfolded in the u s the analyses are based on all available and appropriate national datasets each offering unique strengths and measuring a different drug related outcome we investigate self reported illicit drug use from the national household surveys on drug abuse and national surveys on drug use and health drug related prison admissions from the national corrections reporting program drug related arrests from federal bureau of investigation uniform crime reports and drug related emergency department episodes from the drug abuse warning network we find robust evidence that welfare reform led to a 10 21 decline in illicit drug use among women at risk of relying on welfare as well as associated declines in drug related arrests 6 7 drug related hospital emergency department episodes 7 11 and possibly drug related prison admissions 11 19 the findings indicate that an appropriately designed system with sufficient job opportunities for those are able to work can result in both increases in employment and decreases in drug use

welfare use and children s longer term achievement we investigate the effects of mothers welfare use on children s longer term performance to address issues of improper comparison groups and the endogenous nature of welfare participation we focus on less educated single mothers and adopt a correction function approach data are drawn from the national longitudinal survey of youth 1979 children and young adult from 1994 to 2010 estimation results confirm the positive longer term effects of mothers welfare use on average a child whose mother used welfare in all 20 quarters after childbirth experiences a 0 56 point increase in their yearly high school grade point average is 12 more likely to graduate from high school and earns 1112 76 more in the first observed income than a child whose mother does not

the effect of food stamps on labor supply a bivariate selection model abstract although there is a large literature on the effects of u s transfer programs on labor supply this is the first such study of the food stamp program we model the nonlinearity and nonconvexity of the budget constraint and use maximum likelihood methods to estimate hours of work functions for female heads of household the largest recipient group in the program we also model the joint response to afdc and food stamps and we account for the existence of a significant number of eligible households who do not participate in the programs a three equation bivariate selection model is estimated on a sample of eligible households with maximum likelihood

is welfare reform responsible for low skilled women s declining health insurance coverage in the 1990s we use data from the 1989 2001 march supplements to the current population survey to determine whether welfare reform contributed to declines in health insurance coverage experienced by low skilled women between 1988 and 2000 women with less than a high school education experienced an 8 0 percentage point decline in the probability of having health insurance against this backdrop of large declines welfare waivers and tanf are associated with modest increases in coverage for low skilled women of 2 3 and 3 6 percentage points respectively overall our findings suggest that welfare reform did not contribute to declines in coverage but rather offset them somewhat

welfare transfers in two parent families labor supply and welfare participation under afdc up this paper examines the effect of cash transfers and food stamp benefits on family labor supply and welfare participation among two parent families the aid to families with dependent children unemployed parent program has provided cash benefits to two parent households since 1961 despite recent expansions little is known about the program s effect on labor supply and welfare participation i develop a model of family labor supply in which hours of work for the husband and wife are chosen to maximize family utility subject to a family budget constraint accounting for afdc up benefits and other tax and transfer programs the husband s and wife s labor supply decisions are restricted to no work part time work and full time work maximum likelihood techniques are used to estimate parameters of the underlying hours of work and welfare participation equations the estimates are used to determine the magnitude of the work disincentive effects of the afdc up program and to simulate the effects of changes in afdc up benefit and eligibility rules on family labor supply and welfare participation the results suggest that labor supply and welfare participation among two parent families are highly responsive to changes in the benefit structure under the afdc up program

time limits and welfare use time limits represent a substantial departure from previous welfare policy theory suggests that their effects should vary according to the age of the youngest child of the family i test this prediction using data from the current population survey and find that time limits indeed have larger effects on families with younger children i further estimate that anticipatory responses to time limits have decreased welfare use by 6 to 7 percent accounting for 12 to 13 percent of the decline in welfare use during the late 1990s

did canadian welfare reform work the effects of new reform strategies on social assistance participation this paper measures the extent to which declines in social assistance sa participation were associated with novel and aggressive reforms referred to as new reform strategies work requirements diversion earning exemptions and time limits controlling for province specific benefit levels eligibility requirements gdp growth labour market conditions and demographics sa participation rates were more than one percentage point lower equivalent to a 13 decline in provinces with new reforms work requirements with strong sanctions had the sharpest negative associations new reform strategies explain at least 10 of observed declines in sa participation twice that of benefit levels and eligibility requirements

assessing empirical approaches for analyzing taxes and labor supply recent surveys on the labor supply responses of men document a divergence in the estimates of substitution and income effects obtained using various estimation approaches generally studies accounting for nonlinear tax schedules in a static setting via a piecewise linear approach produce estimates that typically imply higher substitution and lower income responses than are suggested by empirical work applying other approaches this paper demonstrates that maximum likelihood estimation of a consumer choice problem with nonlinear budget sets implicitly relies on the satisfaction of inequality constraints that translate into behaviorally meaningful restrictions these constraints arise not as a consequence of economic theory but instead as a requirement to create a properly defined statistical model in the analysis of piecewise linear budget sets the implicit constraints required by maximum likelihood in estimation amount to imposition of slutsky conditions at all wage income combinations associated with kink points in the analysis of differentiable budget sets the tacit constraints invoked by maximum likelihood also involve inequality restrictions on slutsky terms the empirical work presented in this study supports the contention that these implicit constraints play a major role in explaining the discrepancies in estimates found in the literature on men s labor supply

welfare recipient work choice and in kind benefits in washington state we analyze the work choice of welfare recipients potential welfare recipients compare their on and off welfare utility from after tax income and in kind benefits via employment or welfare and choose whether to work our null hypothesis which we reject is that benefits affect only the decision to work or not not the hours worked which will depend on wages using temporary assistance for needy families tanf administrative data from washington state we find that employer provided health insurance and child care subsidies significantly raise exit rates of tanf recipients and induce greater work effort other work inducing factors include wages and the earned income tax credit while increased levels of medicaid food stamps and the income guarantee increase welfare dependency

welfare dynamics under time limits among the most important changes brought about by the personal responsibility and work opportunity reconciliation act of 1996 are time limits which provide consumers with an incentive to conserve their welfare benefits for future use among forward looking expected utility maximizing consumers who face liquidity constraints and earnings uncertainty economic theory predicts that the incentive to conserve should be strongest among families with the youngest children we test this prediction using data from florida s family transition program a randomized welfare reform experiment our estimates generally exhibit the predicted age dependence which suggests that time limits affect welfare use before they become binding our estimates indicate that in the absence of other reforms that increased welfare use ftp s time limit would have reduced welfare receipt by 16 percent

the politics of foreign direct investment into developing countries increasing fdi through international trade agreements the flow of foreign direct investment into developing countries varies greatly across countries and over time the political factors that affect these flows are not well understood focusing on the relationship between trade and investment we argue that international trade agreements gatt wto and preferential trade agreements ptas provide mechanisms for making commitments to foreign investors about the treatment of their assets thus reassuring investors and increasing investment these international commitments are more credible than domestic policy choices because reneging on them is more costly statistical analyses for 122 developing countries from 1970 to 2000 support this argument developing countries that belong to the wto and participate in more ptas experience greater fdi inflows than otherwise controlling for many factors including domestic policy preferences and taking into account possible endogeneity joining international trade agreements allows developing countries to attract more fdi and thus increase economic growth

the effects of single mothers welfare use and employment decisions on children s cognitive development i introduction in this article we study the effects of low skilled single mothers welfare use and employment choices during their children s early years on their children s cognitive development we use participation in aid to families with dependent children afdc and after 1996 temporary aid to needy families tanf to represent welfare use before 1996 afdc was one of the largest welfare programs in the united states in addition to cash benefits participation in the afdc program often assured eligibility for other programs such as head start food stamps and medicaid 1 in 1996 the personal responsibility and work opportunity reconciliation act prwora ended afdc replacing it with the tanf program even though prwora introduced a time limit on welfare benefits tanf is still one of the most expansive government programs and participation in tanf remains highly correlated with other program participation welfare is used mostly by low skilled single mothers with low incomes who are likely to be highly constrained in terms of resources to invest in their children s development welfare program participation can provide these mothers with monetary and nonmonetary resources that can be very important to early nurturing but does welfare use benefit the development of the participating children through provision of these resources we analyze the relationship between a mother s welfare use and employment decisions during the first 5 years of her child s life and the child s first observed standardized mathematics score from the peabody individual achievement test piat math it is important to identify contributors to early cognitive development since this has been shown to be a strong predictor of long term achievement in particular early test scores are strongly correlated with educational attainment criminal activity salaries and out of wedlock pregnancy see reviews by duncan and brooks gunn 1997 haveman and wolfe 1995 and currie and thomas 1999 we use math scores on piat test as our primary measure of attainment primarily because they have been shown to be predictors of not only later math scores but also other academic achievement for example see claessens duncan and engel 2009 and duncan et al 2007 we contribute to the literature in three ways first the effects of a mother s decisions in our attainment function are allowed to interact with the child s observed innate ability which we will define later this allows us to obtain distributions for the effects of work and welfare by children s innate ability in addition to a single coefficient that measures only the effect at the mean level to our knowledge our article is one of few that allow for this flexibility bernal 2008 and bernal and keane 2010 2011 find that the marginal effects of a mother s work and child care choices decrease with the innate ability of the child that is although the effects on a child with average innate ability may be small and positive there are significantly larger positive impacts for the children with below average innate ability and large negative effects for children with above average innate ability second we model the child s attainment as a function of the mother s cumulative inputs a child s attainment observed when they turn six is determined by the cumulative welfare use and work experiences of the first 20 quarters 5 years after birth the longer multiple periods not only enable us to identify the effects using a much richer variation in mothers decisions but also allow us to investigate the influence of different intensity levels of work and welfare use third we model multiple channels through which a mother s decisions can affect her child s attainment including direct monetary benefits available for each child parental time and exemplary behavior role model effects captured by the mother s employment and non pecuniary benefits from in kind transfer programs

forecasting inflation using interest rate and time series models some international evidence it has been suggested that inflation forecasts derived from short term interest rates are as accurate as time series forecasts previous analyses of this notion have focused on u s data providing mixed results in this article the authors extend previous work by testing the hypothesis using data taken from the united states and five other countries using monthly eurocurrency rates and the consumer price index for the period 1967 86 their results indicate that time series forecasts of inflation have equal or lower forecast errors and have unbiased predictions more often than the interest rate based forecasts copyright 1990 by the university of chicago

making work pay changes in effective tax rates and guarantees in u s transfer programs 1983 2002 in the 1990s many states liberalized statutory rules regarding the tax treatment of earned and unearned income for welfare program eligibility and benefit levels i use quality control data from the afdc tanf program over 1983 2002 to document changes in the corresponding effective tax rates and benefit guarantees after welfare reform i find that effective tax rates fell by 50 percent on earned income and by at least 70 percent on unearned income states that aggressively reformed their welfare programs especially those that implemented a stringent sanctions policy on benefits experienced more rapid reductions in effective tax rates and guarantees

an economic model of welfare stigma perhaps the most basic assumption of the economic theory of consumer demand is that more is better than less virtually all of the major propositions of consumer theory can in a certain sense be derived from the assumption that goods are good interestingly however this tenet seems to be violated by the behavior of many individuals in the low income population for many turn out to be eligible for a positive welfare benefit but do not in fact join the welfare rolls for example it has been estimated that in 1970 only about 69 percent of the families eligible for afdc aid to families with dependent children participated in the program see richard michel 1980 the corresponding percentage for afdc u the program for which families with an unemployed male are eligible was only 43 percent and the participation rate in the food stamp program was only 38 percent see maurice mcdonald 1977 this phenomenon has puzzled many investigators because such individuals do not locate on the boundaries of their budget sets consequently most investigators ignore the problem when studying the effects of welfare programs on behavior in this paper this seemingly irrational rejection of an increase in income is modeled as resulting from welfare stigma that is from disutility arising from participation in a welfare program per se 1 the existence of stigma has been amply documented in the sociological literature patrick horan and patricia austin 1974 lee rainwater 1979 where interviews of recipients have often uncovered feelings of lack of self respect and negative self characterizations from participation in welfare nevertheless this phenomenon has not been modeled and many questions consequently remain when is the disutility of participation strong enough to prevent participation shouldn t we expect individuals to weigh the disutility of participation against the potential benefit in their decisions what is the elasticity of participation with respect to the potential benefit also in a slightly different vein how are the work disincentives of welfare affected by stigma these questions have been given scant attention by economists yet they are crucial for our ability to predict the impact of various welfare programs on the lowincome population here these questions are addressed by modeling nonparticipation as a utility maximizing decision the model is developed and estimated for the afdc program 2 the model posits an individual utility function containing not just disposable income but

does economic diplomacy work a meta analysis of its impact on trade and investment we review the literature on economic diplomacy and provide a meta analysis of 32 empirical studies published in 1986 2011 that deal with the trade and investment impact of economic diplomacy embassies consulates other diplomatic facilities investment and export promotion offices trade and state visits controlling for differences in research design methodology time frame and manner of data we find a positive and significant effect of economic diplomacy on international economic flows with the exception of state visits and that this is true in a sample of 627 t statistics analysed with ols and for a larger sample of 963 reported significance levels analysed with logit thus illustrating robustness with respect to sample and estimation technique our analyses show that reported effects of economic diplomacy on trade and investment in individual studies are sensitive to model specification the primary studies that investigate only one source country are less likely to report significant positive effects compared to other sciences economic studies are less likely to report significantly positive effects of economic diplomacy primary studies lump embassies and consulates general into one indicator miss that these instruments differ significantly embassies consulates and agencies should thus be included as separate instruments in future research

international interest rates and inflationary expectations abstract fama s hypothesis that short term interest rates are efficient predictors of inflation has been criticized on the grounds that his test depends critically on the constancy of the short term expected real rate of interest this paper uses an international framework where the time invariance assumption of the real rate is replaced by the assumption that short term expected real rates are identical at a point in time across countries with well developed capital markets results support fama s contention that short term nominal rates of interest reflect inflationary expectations

the demand for welfare generosity this paper estimates economic models of the determinants of state benefit levels in the aid to families with dependent children afdc program using 1969 1992 data these models have been extensively researched however the existing literature has produced an unacceptably wide range of estimates using alternative econometric procedures this paper systematically examines both the specification assumptions underlying previous analyses as well as several additional specification issues it is therefore able to replicate and reconcile estimates from previous studies and to provide updated consensus estimates of the demand for welfare generosity it finds that changes in the average level of income within states have small but statistically significant positive effects on benefits with the confidence bounds on the elasticity extending from 0 11 to 0 82 changes in the effective price of redistribution are found to have at most weak negative effects with elasticities in the range of 0 14 to 0 02 these results are used to evaluate the effects of block grant provisions in the recently enacted welfare reform legislation

the effects of time limits the eitc and other policy changes on welfare use work and income among female headed families of all of the welfare reforms that were implemented during the 1990s time limits may represent the single greatest break from past policy this paper expands on what is known about this important welfare reform measure by exploiting the predictions from grogger and michalopoulos 2003 to estimate the effects of time limits on welfare use employment labor supply earnings and income among female headed families results based on data from the march current population survey suggest that time limits have had important effects on welfare use and work accounting for about one eighth of the decline in welfare use and about 7 of the rise in employment since 1993 they have had no significant effect on earnings or income however the analysis also shows that the collective effects of other reforms have had important impacts on employment and labor supply furthermore it identifies the earned income tax credit eitc as a particularly important contributor to both the recent decrease in welfare use and t

the impact of taxes and transfers on job search this article develops a framework for analyzing the impact of taxes and transfers on the length of time a person waits to accept a job while receiving transfer payments it considers the impact of changes in the parameters of a generic tax transfer system characterized by a guarantee and a tax rate on the costs and benefits of search the analytical results indicate that increases in guarantees need not increase duration of unemployment the results for unemployment insurance are a special case of the more general formulation developed in this article in fact increases in guarantees and increases in tax rates may shorten the duration of unemployment while decreasing the labor supply of transfer recipients

the effects of real wages and labor productivity on foreign direct investment the volume of foreign direct investment fdi both into and out of the united states has grown rapidly in the past several decades theoretically labor costs in both source and host countries could be important determinants of these flows but thus far no consistently significant effects have been reported for fdi flows between the u s and other industrialized countries in this paper i estimate equations for u s fdi flows to and from five other industrialized countries the explanatory variables include both source and host country real wages and labor productivity but to put my work in perspective i shall first in section ii discuss recent literature in the area then section iii briefly discusses a theoretical model to highlight the possible effects of the labor variables the empirical procedure and results are presented in section iv and a summary in section v

on the accuracy of time series interest rate and survey forecasts of inflation there has been much work examining and evaluating different methodologies in forecasting inflation for example fama 1975 1977 develops an interest rate model to predict the 1 monthahead rate of inflation using the cpi fama and gibbons 1982 1984 modify the interest rate model to account for a nonconstant real rate of interest and compare it to a univariate timeseries forecasting model and to the livingston forecasts carlson 1977a 1977b and others also analyze the consensus forecasts from the livingston survey pertaining to multiperiod forecasts of inflation pearce 1979 considered the livingston survey and time series forecasts our purpose in this paper is to investigate further the relative forecasting ability of three different methodologies in contrast to previous studies that have generally used the cpi to measure inflation our analysis uses the implicit gnp deflator this modification is motivated largely by the fact that calculations of the cpi inflat n rate often are distorted greatly by changes in relative prices e g blinder 1980 fischer 1981 this paper compares the accuracy of three different inflation forecasting procedures these include a univariate time series model an interest rate model based on the methodology of fama and gibbons and the median forecasts derived from the american statistical association national bureau of economic research survey the evidence presented is based on ex ante forecasts of quarterly inflation rates using the gnp deflator for the period 1970 11984 11 based on the evidence presented the general conclusion is that the survey forecasts provide the most accurate inflation forecasts

reversal of fortunes democratic institutions and foreign direct investment inflows to developing countries does increased democracy promote or jeopardize foreign direct investment fdi inflows to less developed countries we argue that democratic institutions have conflicting effects on fdi inflows on the one hand democratic institutions hinder fdi inflows by limiting the oligopolistic or monopolistic behaviors of multinational enterprises facilitating indigenous businesses pursuit of protection from foreign capital and constraining host governments ability to offer generous financial and fiscal incentives to foreign investors on the other hand democratic institutions promote fdi inflows because they tend to ensure more credible property rights protection reducing risks and transaction costs for foreign investors hence the net effect of democracy on fdi inflows is contingent on the relative strength of these two competing forces our argument reconciles conflicting theoretical expectations in the existing literature empirical analyses of fifty three developing countries from 1982 to 1995 substantiate our claims we find that both property rights protection and democracy related property rights protection encourage fdi inflows after controlling for their positive effect through property rights protection democratic institutions reduce fdi inflows these results are robust against alternative model specifications statistical estimators and variable measurements

state visits and international trade politicians travel extensively abroad for various reasons one purpose of external visits is to improve bilateral economic relations in this paper i examine the effect of state visits on international trade i use a large data set covering the travel activities of the heads of state of france germany and the united states between 1948 and 2003 my results indicate that state and official visits are indeed positively correlated with exports a typical visit is associated with higher bilateral exports by about 8 to 10 per cent holding other things constant

aid governance and private foreign investment some puzzling findings for the 1990s does official aid pave the road for private foreign investment or does it suffocate private initiative by diverting resources towards unproductive activities we explore this question using panel data covering a large number of developing and emerging economies during the 1990s controlling for countries institutional environment we find that evaluated at the mean the marginal effect of aid on private foreign investment is close to zero surprisingly however the effect is strictly positive for countries in which private agents face a substantial regulatory burden this result is robust across a wide range of specifications samples and estimation methods

inflation real returns and capital investment we find evidence for the hypothesis of mundell 1963 and tobin 1965 that the expected real return component of interest rates is negatively related to the expected inflation component in the mundell tobin model the variation in expected real returns is caused by the variation in expected inflation our evidence suggests however that the variation in expected real returns is more fundamentally an outcome of the capital expenditures process equilibrium expected real returns vary directly with capital expenditures in order to induce equilibrium allocations of resources between consumption and investment this positive relation between expected real returns and real activity which comes out of the real sector combines with a negative relation between expected inflation and real activity which is traced to the monetary sector thus inducing the negative relation between expected inflation and expected real returns predicted by mundell and tobin but explained in terms of a model much different from theirs

linkages among welfare food assistance programmes and labour supply evidence from the survey of programme dynamics at the centre of the debate on welfare reform is whether incentives based systems help poor families move out of poverty into jobs recent data from the first survey of programme dynamics longitudinal and the 1998 experimental data files allow evaluation of the interaction among the food stamp programme fsp temporary assistance for needy families tanf programme and labour force participation under different programme design and economic conditions a model that incorporates jointly determined programmes participation and work decisions is applied to a sample of working age lower income and asset households participation in tanf increases the probability of fsp participation and decreases the probability of being in the work force working decreases the probability of receiving food stamps work tanf and fsp participation are related and tanf and fsp participation rates among poor households who are potentially eligible for tanf are sensitive to changes in programme parameters as expected labou

parental and public transfers to young women and their children this paper presents estimates of how an increase in welfare benefits for the welfare eligible affects the provision of parental support in the form of both financial transfers and shared residence based on an overlapping generations framework incorporating game theoretic interactions among parents their adult children and the government the empirical results obtained from two longitudinal data sets indicate that the parents view a dollar of income earned by their daughters as equivalent to a dollar increase in welfare benefits however there exists only a small trade off between the generosity of government aid and the incidence of parental aid data are for the united states and are from the national longitudinal survey of young women for 1968 1984 and the national longitudinal survey of youth for 1979 1984 excerpt

welfare use when approaching the time limit time limits reduce caseloads directly by cutting off benefits after a time limited usage but may also provide families with an incentive to reduce welfare use in order to conserve their benefits both effects depend on the stock of remaining months of eligibility this is the first empirical study to incorporate information on this crucial determinant of takeup and eligibility under time limits accounting for the potential endogeneity of an individual s past use time limits are estimated to have decreased welfare use by 25 percent between 1996 and 2003 roughly one fifth of this reduction is due to behavioral responses

estimates of effective guarantees and tax rates in the afdc program for the post obra period we employ the model used by fraker moffitt and wolf 1985 to estimate effective tax rates and guarantees in the aid to families with dependent children afdc program for the years 1967 82 to produce comparable estimates for 1983 91 we compare this method of benefit prediction with other methods in the literature and clarify the interpretation of estimates generated using the fraker moffitt and wolf model we use our estimates for the period from 1983 to 1991 to examine how effective afdc tax rates and guarantee levels have changed over time and relative to nominal or official program parameters

on the link between japanese oda and fdi in china a microeconomic evaluation using conditional logit analysis this study investigates the effectiveness of japan s official development assistance in promoting foreign direct investments inflows in the case of the people s republic of china conditional logit analysis using province level statistics from 1980 to 1999 shows that japanese aid flows did have a significant positive impact on private investors location choice even though other profit maximizing factors such as the level of economic activity had a leading spillover effect in a context of growing scarcity of aid the study concludes by asserting the importance of a complementary process in which foreign aid is aimed at enhancing the development of infrastructures acting as a pre requisite for future direct investments finally japan providing an interesting case study we stress the need for a better cooperation between public and private sectors in development assistance programmes

some evidence on the international inequality of real interest rates abstract this paper undertakes econometric tests of the hypothesis that ex ante real interest rates are equal across countries with highly integrated capital markets the issue is of practical importance because the violation of real rate equality is a necessary condition for monetary policy to influence the open economy through the real interest rate channel although an empirical literature concerning real rate equality already exists previous investigators have focused on pre tax real rates this paper contributes to the literature by attempting to incorporate the effects of taxation into the analysis

a comparison of inflation forecasts interest rate models provide slightly better monthly forecasts and substantially better eight and fourteen month forecasts of inflation than a univariate time series model the livingston surveys underestimate eight and fourteen month inflation rates especially during the high inflation period of 1978 81 in contrast eight and fourteen month inflation forecasts extrapolated from one month interest rates show little bias and track ex post eight and fourteen month inflation rates better than the survey forecasts

effective tax rates and guarantees in the afdc program 1967 1982 estimates of effective tax rates on earned and unearned income and estimates of effective guarantees in the afdc program by state are provided for the period 1967 1982 the results indicate that effective real guarantees fell every year from 1967 to 1981 but stabilized in 1982 effective tax rates on unearned income rose steadily from 1967 to 1981 and took a particularly large additional jump in 1982 effective tax rates on earned income fell after 1967 but then gradually rose throughout the 1970s until 1982 when they took a much larger jump thus guarantees fell and tax rates rose over the 1970s as tight budgets forced states to restrict benefits and in the early 1980s tax rates were pushed even higher by federal legislation

does foreign aid increase foreign direct investment summary we examine the idea that aid and foreign direct investment fdi are complementary sources of foreign capital we argue that the relationship between aid and fdi is theoretically ambiguous aid raises the marginal productivity of capital when used to finance complementary inputs like public infrastructure and human capital investments but aid may crowd out private investments when it comes in the shape of pure physical capital transfers empirically we find that aid invested in complementary inputs draws in fdi while aid invested in physical capital crowds it out the paper shows that the composition of aid matters for its overall level of efficiency

measuring the effects of welfare time limits this paper develops a simple regression model that incorporates the behavioral dynamics of time limits and is estimable by panel data techniques by relating this model to reduced form analysis i clarify an implicit assumption that underlies a popular difference in differences did specification which understates the overall effects of time limits i also find that a considerable amount of dynamics is due to individuals reducing welfare use as their stock of remaining welfare eligibility depletes this generates more plausible predictions related to counterfactuals cumulative welfare use patterns and mechanical termination of benefits

when do women use aid to families with dependent children and food stamps the dynamics of eligibility versus participation this paper investigates dynamic patterns in the relationship between eligibility and participation in the aid to families with dependent children afdc and food stamp programs using monthly longitudinal data from the survey of income and program participation the results indicate that there are many relatively short eligibility spells that do not result in program participation and end with increases in income participation is most likely to occur among women with lower current and future earnings opportunities and is affected by locational and policy parameters those who elect to participate in these programs tend to start receiving benefits almost immediately upon becoming eligible a substantial number of women exit these programs before their eligibility ends among at least some of these women it is likely that unreported changes in income are occurring in 1989 if all eligible single parent families had participated in afdc and food stamps benefit payments in these programs would have been 13 5 billion higher

was it the economy or reform that precipitated the steep decline in the us welfare caseload 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

robust estimation and inflation forecasting this paper considers various models emerging from the fisher effect and or the term structure of interest rates for inflation forecasting this paper it is believed makes a contribution to the literature on estimation of the models by using a procedure that is robust for non normal errors improving the efficiency of the estimates considerably the consumer price index series 90 days and 180 days australian bank accepted bill rates covering the sample period 1968q1 to 1998q4 were used in this study contrary to earlier findings strong evidence was documented supporting the fisher effect in the presence of a structural break with the break point being at 1980q1 the overall results suggest that the error correction model of the fisher effect the term structure of interest rates and short run dynamics produce superior forecasts in particular when the models were estimated using the robust method these findings have important implications for economic policy analysis

dignity and dreams what the earned income tax credit eitc means to low income families money has meaning that shapes its uses and social significance including the monies low income families draw on for survival wages welfare and the earned income tax credit eitc this study based on in depth interviews with 115 low wage eitc recipients reveals the eitc is an unusual type of government transfer recipients of the eitc say they value the debt relief this government benefit brings however they also perceive it as a just reward for work which legitimizes a temporary increase in consumption furthermore unlike other means tested government transfers the credit is seen as a springboard for upward mobility thus by conferring dignity and spurring dreams the eitc enhances feelings of citizenship and social inclusion

the 1993 eitc expansion and low skilled single mothers welfare use decision previous studies on low skilled single mothers focus generally either on the binary welfare use or work decision however work among welfare participants has increased steadily since the mid 1990s this study estimates the role of the 1993 earned income tax credit eitc expansion on the decline of welfare caseloads using a bivariate probit model using monthly survey of income and program participation sipp information i find that the 1993 eitc expansion has at least the same effect on reducing welfare use as the welfare reform initiatives moreover the elasticity estimates indicate that single mothers especially those who were not employed and dependent solely on welfare before the expansion were the most responsive to the policy initiatives finally the increase in work among welfare participants is due to the relative ineffectiveness of the policies in reducing the net population of those who are on welfare and work simultaneously

what do economists know an empirical study of experts expectations for more than three decades economic columnist joseph a livingston has canvassed a panel of economists twice a year eliciting their six month and twelve month forecasts for more than a dozen key variables this study analyzes whether the experts predictions are unbiased and whether complete use was made of all relevant known information unbiasedness and completeness being necessary conditions for fully rational expectations little bias was found in either the half year or full year predictions but extensive underutilization of information particularly data on monetary growth occurred to prophecy is extremely difficult especially with respect to the future chinese proverb do economists expectations regarding key price and nonprice variables utilize all known relevant information in an unbiased efficient manner this is a worthy subject for research for several reasons properties of experts predictions likely form an upper bound for those of laymen further as john muth 14 has noted the character of dynamic processes is typically very sensitive to the way expectations are influenced by the actual course of events p 316 hence we need to know precisely how events do affect expectations finally the common practice of replacing a variable s generally unobserved expectation with a proxy based on its past values will be unbiased and will not cause bias in other

international investment location decisions abstract in international location tournaments governments compete for foreign investment with tax and other short run incentives such tournaments can be won if agglomeration economies are sufficiently powerful to overcome investors desire to spread investments as a hedge against risk we focus on manufacturing investments by u s multinationals in the 1980s our econometric results suggest that agglomeration economies are indeed the dominant influence on investor calculations paradoxically short run incentives have limited apparent impact on location choice we conclude that high cost tournament play is unnecessary for countries with good infrastructure development specialized input suppliers and an expanding domestic market

dead on arrival zero tolerance laws don t work why do college students drink so stupidly because drinking intelligently is against the law jack hitt new york times magazine october 1999 i introduction for two decades u s drunk driving legislation has become increasingly strict as the states responding to financial incentives provided by congress have reduced allowable blood alcohol content bac levels in 2005 the last state lowered its illegal per se bac limit for adults to 0 08 down from 0 10 during the 1990s even lower limits of 0 01 or 0 02 were instituted for drivers under 21 yr here termed youth as shown in figure 1 this legislation which adopts a zero tolerance policy toward underage drinking and driving is the subject of this paper previous work on zero tolerance laws has thoroughly examined their effects on a variety of drinking related behaviors but as yet their effects on traffic fatalities the most fundamental question of all have not received a full treatment existing u s fatality analyses have been limited either in scope comprising a small part of a larger empirical study or sophistication utilizing relatively crude statistical methods a full treatment is needed for two reasons the first is to thoroughly ground the analysis in economic theory which has not been done before on the surface a zero tolerance law would seem to be a simple powerful sure way to reduce drunk driving fatalities but economists used to thinking on the margin should suspect otherwise this legislation generates strong marginal disincentives against taking the first drink but much smaller marginal disincentives thereafter depending on the effect of bac on the probability of arrest etc these marginal incentives are not uniformly stronger than those imposed by higher bac limits as a result zero tolerance laws can have unintended or perverse effects of uncertain magnitude that counteract the purpose of the law ultimately zero tolerance legislation has ambiguous effects on fatalities and economic efficiency we demonstrate this in a simple model and derive new predictions that are testable and unambiguous figure 1 omitted our second objective is to provide comprehensive evidence of zero tolerance laws effects on traffic fatalities applying a variety of panel techniques to data from the fatality analysis reporting system fars of the national highway traffic safety administration nhtsa the limited scope of earlier studies leaves their results generally supportive of these laws efficacy potentially sensitive to specification or subject to omitted variables bias problems that have occurred elsewhere in the traffic safety literature in our analysis we pay particular attention to these issues which turn out to be fundamental using a variety of direct and indirect methods to control for unobservable factors and ascertain the robustness of our results this is complemented by a distributional analysis new to this literature that quantifies the intended and unintended consequences of zero tolerance legislation and tests the only robust hypotheses generated by theory these analyses indicate that the intended and unintended consequences of zero tolerance legislation are minimal zero tolerance laws have no material effect on fatalities because they have no material effect on driver behavior ii the theory of single bag thresholds a setup a simple model can illustrate the individual and population effects of a reduction in permissible bac levels of which zero tolerance laws are the most extreme example let c denote the amount of alcohol consumed and v sub n c denote the value of that consumption to the consumer the amount individual n is willing to pay for permission to purchase c units of alcohol at the market price and consume them any harmful internal effects of alcohol consumption are captured in v the expected harm to others resulting from drunk driving is denoted by d

who was affected by new welfare reform strategies microdata estimates from canada abstracta heterogeneous mix of aggressive welfare reforms took effect in different provinces and years starting in the 1990s welfare participation rates subsequently declined previous investigations of these declines focused on cuts in benefits and stricter eligibility requirements this article focuses instead on work requirements diversion earning exemptions and time limits referred to jointly as new welfare reform strategies while controlling for benefit levels eligibility requirements province specific labour market conditions and gdp growth as well as individual level socio economic information province year specific variation in new reform strategies produce estimates implying that their presence is associated with a large decline in welfare participation of 1 3 percentage points 14 relative to the unconditional mean participation rate of 9 2 our coding scheme generates new measures of policy variation that distinguish reductions in benefit levels and tighter eligibility restriction

is foreign aid a vanguard of foreign direct investment a gravity equation approach summary this paper investigates whether and how foreign aid facilitates foreign direct investment fdi flows into less developed countries we employ a large data set of source recipient country pairs and conduct gravity equation type estimation our empirical methodology enables us to examine an effect through which aid from a donor country promotes fdi from the same donor in particular which we call a vanguard effect we find that foreign aid in general does not have any significant effect on fdi however when we allow for differences in the size of aid effects across donor countries we find robust evidence that foreign aid from japan in particular has a vanguard effect i e japanese aid promotes fdi from japan but does not attract fdi from other countries

trade policy and productivity abstract previous studies on the determinants of productivity emphasized the role of trade and institutions but omitted trade policy due to endogeneity concerns this paper considers the role of one important element of trade policy free trade agreements ftas based on recent work on the determinants of ftas we suggest an instrument which is based on the propensity to enter an fta due to exogenous geographical characteristics we find that differences in institutional quality and trade due to variations in geography and trade policy have a sizeable effect on productivity and can explain the huge variation in per capita income across countries

welfare the earned income tax credit and the labor supply of single mothers during 1984 1996 welfare and tax policy were changed to encourage work by single mothers the earned income tax credit was expanded welfare benets were cut welfare time limits were added and welfare cases were terminated medicaid for the working poor was expanded as were training programs and child care during this same time period there were unprecedented increases in the employment and hours of single mothers we show that a large share of the increase in work by single mothers can be attributed to the eitc and other tax changes with smaller shares for welfare benet cuts welfare waivers training programs and child care programs