Determinants of AFDC Caseload Growth. 3. AFDC Program Variables


In Chapter One we presented a stylized, but essentially correct, version of the budget constraint for an AFDC household. Ignoring the value of Medicaid benefits, which we consider separately, the constraint reflects earnings, AFDC cash payments, the value of Food Stamps, the earned income tax credit (EITC) and payroll (FICA) taxes. The stylized constraint is characterized by four parameters: the maximum monthly benefit (MMB), the average tax and benefit reduction rate (ATBRR), the marginal tax and benefit reduction rate (MTBRR), and the gross income limit (CUTGIL). We constructed quarterly series for the first three of these parameters for each state using program data. For CUTGIL, which may be inconsequential in some cases, but binding in others, we constructed a measure of how restrictive the limit is likely to be. One of the four series, MTBRR, varies relatively across states in any given year during the sample period and, therefore, is not used in the models we report.(8)

In addition to these four parameters, we constructed a series of dummy variables to capture the effects of program changes that are not fully reflected in changes to the parameters.