On the Road to Self-Sufficiency after Welfare Reform: An Assessment of the Impact of Changes in Welfare Asset Limits on Auto- Ownership Rates and Employment

Cynthia Bansak (), Heather Mattson and Lorien Rice ()
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Cynthia Bansak: Department of Economics, San Diego State University
Heather Mattson: Department of Economics, San Diego State University
Lorien Rice: Public Policy Institute of California

No 1, Working Papers from San Diego State University, Department of Economics

Abstract: In this paper, we assess the impact of the easing of vehicle exemption limits and asset restrictions after the passage of welfare reform legislation on the rates of car-ownership observed among female headed households with children. Prior to the passage of the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) in 1996, nearly all states exempted only $1,500 of vehicle equity from the minimum assets test and assets were limited to $1000 in most states. Post-welfare reform, however, nearly all states increased the vehicle exemption limit, with twenty-five states exempting the entire value of a single vehicle. In addition, the overall asset test rose in most states. In this paper, we use micro-level data from the 1993 and 1996 panels of the Survey of Income and Program Participation (SIPP) from the years 1994 to 1999 to examine 1) how changes in state-level welfare rules over this time period affected auto ownership rates among those most likely at risk of receiving welfare and 2) how the resulting change in auto ownership rates affected the probability of being employed for these individuals. To identify the effect of the redefined benefit eligibility rules on auto-ownership rates, we exploit inter-state differences and changes over time in welfare eligibility rules. Once we control for individual level demographics and state-level economic conditions, our results suggest that the probability of owning a car is greater for those who reside in states with higher overall asset limits and in states with exemptions for multiple vehicles. When we look at the sample of female heads with children relative to a control group of male and female household heads without children, we also find that assessing the value of the vehicle on an equity basis (rather than fair market basis) is associated with higher rates of car ownership. Using a two stage least squares approach (2SLS) that instruments car ownership with benefit eligibility rules, we find some evidence that asset-related rules have an effect on employment outcomes via car ownership. Thus, our results shed light on the role of the changes to eligibility rules on the transition from welfare to work.

Date: 2005-03

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Persistent link: http://EconPapers.repec.org/RePEc:sds:wpaper:0001

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