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  • Title: Demographic behavior and the welfare state: econometric issues in the identification of the effects of tax and transfer programs.
    Author: Moffitt R.
    Journal: J Popul Econ; 1989; 1(4):237-50. PubMed ID: 12282851.
    Abstract:
    It is difficult and risky to identify the effects of tax and transfer programs on demographic behavior. The primary concern of this article is to see if real exogenous variation in these programs' parameters exist to adequately evaluate the effects of the programs on behavior. A 1982 study examined the effect of the Aid to Families with Dependent Children (AFDC), a commonly used example of a US transfer program, on the probability that a female heads a household of children 18 years old with no adult male present. The dependent variable merged household, marital status, and fertility choice into 1 variable. The independent variables included leisure hours and income which also defined a woman's utility function. In this study, the parameters used to represent AFDC effects were not only identified by variation in the AFDC variables. 2 other studies attempting to examine AFDC's effects on demographic behavior (Hutchens [1979] and Ellwood and Bane [1985]) also failed to identify these effects. Ellwood and Bane appropriately concentrated on exogenous program variation (since benefits vary from state to state) and how it might be used in evaluating the effects of AFDC on behavior. They erroneously determined, however, that state variation should not be considered in their model. The studies reviewed in this article looked at AFDC, a program with significant intracountry parameter variation, yet these studies relied on potentially illegitimate sources of variation. Intracountry program variation is less likely to occur in Western Europe and therefore the problem of identifying effects of tax and transfer programs on demographic behavior is apt to be even more severe. Any further such studies should address these issues.
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