Expanded Benefits for Aid to Families with Dependent Children (AFDC)

Aid to Families with Dependent Children (AFDC) was a program that provides cash welfare to low-income families with children. Meyer and Rosenbaum (2001) use variation in eligibility for AFDC that is induced by welfare waivers provided to states over time during the 1990s. They model how this affects the nonlinear budget set for single mothers and in particular they study the impact of the generosity of these benefits on labor earnings. They find that a $1,000 increase in AFDC eligibility for those with zero earnings leads to a reduction in employment of -2.95 (s.e. 0.38) percentage points. Hendren and Sprung-Keyser (2020) translate these estimates into an MVPF.

MVPF SUMMARY

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Hendren and Sprung-Keyser (2020) translate the employment estimate from Meyer and Rosenbaum (2001) into an implied fiscal externality per dollar of government benefits, which suggests every $1 of benefits delivers 0.87 in benefits to adults.

In addition to the benefits to adults, Hendren and Sprung-Keyser (2020) use Currie and Cole (1993)‘s estimates of the impact of AFDC participation on birth weights to proxy for the impact on children. Their results imply that AFDC participation during pregnancy increases birthweight by 4.6 ounces, or 4%, for Black children, and 32.0 ounces, or 27%, for poor white children on average. Hendren and Sprung-Keyser (2020) scale this effect by the ratio of the program cost of their conceptual policy ($1,000) to the average yearly AFDC amount in the Currie and Cole (1993) sample, inflation adjusted to 1996. Hendren and Sprung-Keyser (2020) obtain that every $1,000 (1996 USD) in AFDC benefits to the mother in the year of birth increases birth weight by 1% for black children, and 7% for white children. Hendren and Sprung-Keyser (2020) then multiply these effects by the elasticity of adult earnings with respect to birthweight of 0.1 from Black et al. (2007) and take a weighted average over black and white families to obtain an overall earnings increase of 0.4%. This yields a lifetime (discounted) earnings impact of $688.84, to which Hendren and Sprung-Keyser (2020) apply a 20.0% tax rate to calculate government cost impacts (and assume 80% is post-tax willingness to pay by the children). Finally, Hendren and Sprung-Keyser (2020) use the fertility rate from Currie and Gruber (1996) and assume that 6.5% of women on AFDC give birth every year. Hendren and Sprung-Keyser (2020) add this impact to the simple WTP and costs described above, so that the fiscal externality becomes $139 instead of $148 per $1,000 of mechanical spending. And this implies a willingness to pay inclusive of child benefits of $1,036 per $1,000 of spending. Combining, this implies an MVPF of $1,036/$1,139=0.91.