Ziliak, James P. 2007. “Making Work Pay: Changes in Effective Tax Rates and Guarantees in U.S. Transfer Programs, 1983–2002.” Journal of Human Resources 42(3): 619–642.
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.
James P. Ziliak is the Carol Martin Gatton Endowed Chair in Microeconomics and Director of the University of Kentucky Center for Poverty Research. He thanks Terra McKinnish, Robert Moffitt, Seth Sanders, Jeff Smith, and two anonymous referees for helpful comments on earlier versions of the paper. The conclusions expressed herein are solely those of the author and should not be construed as representing the opinions or policy of any agency of the Federal government. The data used in this article can be obtained beginning January 2008 through December 2010 from James P. Ziliak at Department of Economics, Gatton College of Business & Economics, University of Kentucky, Lexington, KY 40506–0034. E-mail: jziliak@uky.edu.