Volume 13, Number 1 (Winter) 1978
Hutchens, Robert M. 1978. "Changes in AFDC Tax Rates, 1967-1971." Journal of Human Resources 13(1):60-74.
This paper presents new measures of the implicit marginal tax rate on earnings in the Aid to Families with Dependent Children (AFDC) program. Previous measures suffer from two types of bias. First, they do not adequately control for nonlinear relationships between AFDC payments and earnings. Second, they are estimated in truncated samples. Through explicit consideration of the AFDC payment formula, methods are devised for eliminating both biases. Using these methods, new estimates of AFDC tax rates are obtained for 1967 and 1971. The data reveal that while federal policy caused tax rates to decline in most states, some states counteracted the federal initiative by altering AFDC program parameters.
The author is Assistant Professor at the New York State School of Industrial and Labor Relations, Cornell University. I wish to thank the Institute for Research on Poverty, University of Wisconsin, for financial support; Professors Harold Watts, Glen Cain, Irwin Garfinkel, Ronald Ehrenberg, and Robert Smith for helpful comments; and Louise Cunliffe for expert computer programming. I am responsible for any remaining errors.
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