Effective Tax Rates and Guarantees and Food Stamp Program Participation

Proiect Summary Identifying the roles of economic incentives and policy parameters in the decision to participate in the Food Stamp Program is critical to our understanding of program need, design, and effectiveness. In order to enhance our understanding of the determinants of Food Stamp Program participation this project proposes to address the following questions: . Are there state-specific differences in effective FSP benefit guarantees and effective tax rates on earned and unearned income? If so, have these effective tax rates and guarantees changed in light of policy decentralization after the 1996 Welfare Reform Act and the 2002 Fann Security and Rural Investment Act? What impact do effective guarantees and tax rates have on the decision to participate in the Food Stamp Program, conditional on other macroeconomic forces, policy parameters, and demographics? Given the historical link between cash welfare participation (AFDC/T ANF) and Food Stamp Program participation, what effect do changes in effective guarantees and tax rates in AFDC/T ANF have on food stamp participation? To what extent is regional variation in Food Stamp Program participation affected by the relative generosity of effective benefits and/or relatively lower effective tax rates on earned and unearned income in each of the food stamp and AFDC/T ANF programs? . . . To answer these questions I will combine administrative data with survey data for the twenty-one year period spanning 1983-2003. The administrative data come from three sources: the Food Stamp Program Quality Control System from 1983-2003, the AFDC Quality Control System from 1983-1997, and the ~ational TANF Data System from 1998-2003. The survey data will come from the March Annual Social and Economic Study of the Current Population Survey. The quality control data will be used to estimate family-size and state-specific effective benefit levels and effective tax rates for the Food Stamp and AFDC/T ANF Programs. These effective tax rates and guarantees will then be merged with household-level data in the CPS and then used as control variables along with other macroeconomic, demographic, and policy factors in a multivariate regression analysis of the Food Stamp Program participation decision. Over the 23- month grant period I propose to produce at least two papers with this project, the first on estimating and documenting the trends in effective tax rate and benefit schedules, and the second on the impact of the effective tax rates and benefits on food stamp participation. A complete set of estimated effective tax rates and guarantees for both the FSP and AFDC/T ANF program will be made publicly available to the research and policy communities. I have obtained the three administrative datasets, as well as the CPS. The results of this study are expected to be of widespread interest to both policymakers and researchers concerned about the design and effectiveness of the Food Stamp Program.