On the optimal reform of income support for single parents

Salvador Ortigueira and Nawid Siassi

Journal of Public Economics, 2023, vol. 225, issue C

Abstract: We characterize the optimal reform of U.S. income support for low-income single parents using a life-cycle heterogeneous agent model with idiosyncratic risk and incomplete asset markets. We use the U.S. tax-transfer system as the benchmark policy and a sample of single mothers drawn from the CPS to assess reforms that maximize average expected utility among single mothers-to-be. When policy cannot be tagged by the age of the children, the optimal reform calls for an increase in out-of-work income support by about 15 percent, and a decrease in earnings subsidies to low-wage workers by roughly 50 percent. This reform delivers substantial welfare gains. Tagging policy by the age of the children makes the government’s trade-off between providing insurance to single mothers with children of pre-school age, on the one hand, and providing work incentives to those with school-age children, on the other hand, more favorable, thus increasing their scope for smoothing marginal utility throughout the life cycle. With tagging, mothers of pre-school age children get a substantial increase in out-of-work income support and no earnings subsidies. Tagging brings additional welfare gains.

Keywords: Optimal income transfers; Single-parent households; Intertemporal savings and labor supply (search for similar items in EconPapers)
JEL-codes: D15 E21 E61 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:225:y:2023:i:c:s0047272723001445

DOI: 10.1016/j.jpubeco.2023.104962

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