aikyam school

TANF Program Rule Interaction Muting

Combining multiple means-tested welfare benefits creates complex overlapping marginal tax rates, altering the effective work disincentive of adding a housing voucher.

Picture this

When a household already receives welfare benefits that phase out with higher earnings, adding a housing subsidy changes their tax schedule less dramatically than it does for a household receiving no initial welfare. Because their effective take-home pay was already reduced by welfare phase-outs, the additional disincentive from the housing voucher has a smaller marginal impact on their choice to work.

What the evidence says

Voucher usage reduced employment by 6.0 percentage points (9 percent of control mean) among households not receiving public assistance at baseline, compared to only 2.5 percentage points (4 percent of control mean) among households receiving public assistance at baseline (p = 0.099).

Who
N = 42,358 total household heads (25,317 receiving public assistance at baseline, 17,041 not receiving public assistance at baseline); low-income, working-age, able-bodied adults, Chicago, Illinois.
How
Instrumental Variables 2SLS regression comparing lottery treatment and control groups stratified by baseline public assistance receipt.

What to do

Account for overlapping welfare program phase-outs when calculating effective marginal tax rates to accurately predict behavioral responses to new housing subsidies.

From the source

"Voucher use reduces employment by 6 percentage points (9 percent) among those who were not receiving benefits at baseline, and by only 2.5 percentage points (4 percent) among those receiving benefits."

The Effects of Housing Assistance on Labor Supply: Evidence from a Voucher Lottery

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