Do Welfare Asset Limits Affect Household Saving? Evidence from Welfare Reform

Abstract

In this paper, we use household-level data from the Panel Study of Income Dynamics to examine the impact of new saving incentives that were implemented as part of the overhaul of U.S. welfare policy during the mid-1990s on the saving of households at risk of entering welfare. The Temporary Assistance to Needy Families program devolved responsibility of program rules to the states, and many states have responded by relaxing liquid asset and vehicle-equity limits that determine program eligibility, and by introducing time limits on benefit receipt. According to the recent theoretical work and statements made by public officials, such policies are predicted to increase total savings for those households who have a large ex-ante probability of welfare receipt such as female-headed households with children. We follow a sample of female heads with children from 1994 to 2001 and find that in both absolute terms, and relative to comparison groups of male heads and female heads without children, there has been no impact of welfare policy changes on the saving of at-risk households.