Income Instability and the Response of the Safety Net

19 Pages Posted: 6 May 2020

Date Written: April 2017

Abstract

This paper examines the response of safety net transfer and tax programs to earnings and income shocks across recessions since the early 1980s. Safety net programs in the United States are designed to dampen economic instability and maintain basic needs for families. Such programs, including TANF, SNAP (food stamps), and the Earned Income Tax Credit (EITC), have been tested during and between recessions of the past 30 years, including the recent 2007–2009 Great Recession. I use matched data in the March Current Population Survey (CPS) from 1980 to 2012 to estimate pre‐ and post‐transfer income instability over the 1980s, 1990s, and 2000s, as well as across recessions. The results are disaggregated by family structure, race, income, and education. Transfer programs are associated with lowered instability levels and flatter trend growth from 1980 to 2012 among socioeconomically disadvantaged subgroups, while the tax system reduces income instability for families in the top 40th percentile of the income distribution. Although the largest instability reductions occur among the poor, since 1980 the safety net appears less responsive to instability for the bottom income quintile, female‐headed families, and black families.

JEL Classification: I38, J63

Suggested Citation

Hardy, Bradley, Income Instability and the Response of the Safety Net (April 2017). Contemporary Economic Policy, Vol. 35, Issue 2, pp. 312-330, 2017, Available at SSRN: https://ssrn.com/abstract=3593645 or http://dx.doi.org/10.1111/coep.12187

Bradley Hardy (Contact Author)

American University ( email )

4400 Massachusetts Ave, NW
Washington, DC 20016
United States

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