Unwelcome Benefits: Why Welfare Beneficiaries Reject Government Aid?

Abstract:     
Participation rates in most means-tested welfare programs in the United States are low. Many low-income individuals refrain from using welfare benefits available for them, although their value of such benefits is presumably high. This Article studies the causes of forgone welfare benefits (unwelcome benefits) and the disparities in participation propensity among eligible individuals. It is shown that avoidable and unavoidable costs, states' distorted incentives, and social norms are the major sources of impediments to benefits and that most of these impediments are embedded in or result from certain legal mechanisms of the welfare system. The analysis and empirical evidence indicate that common impediments to benefits disproportionately burden the most and the least disadvantaged eligible individuals. These polarized participation patterns entail important policy implications, since the conditions of the polar groups and size of benefits forgone by them are fundamentally different. The case of the more disadvantaged individuals who forgo relatively large benefits is troubling. In contrast, the case of nearly ineligible individuals who forgo meager benefits poses the question of why such unattractive benefits are offered in the first place. The differences between the polar groups thus suggest that it is more instructive to identify and evaluate specific participation patterns, rather than to study general participation rates as performance indicators of welfare programs. Finally, the Article draws several conclusions regarding benefit levels, benefit framing, work requirements, time limits, and available means that could attain redistributive improvements.

Number of Pages in PDF File: 44

Keywords: Welfare Programs, Poverty Laws, Redistribution, Consumer Choice

JEL Classification: A14, D31, D61, D63, H42, I38, K00

Accepted Paper Series