Publication: Why is the rate of single-parenthood lower in Canada than in the U.S.? A dynamic equilibrium analysis of welfare policies
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2009
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Blackwell
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Abstract
A critical question in the design of welfare policies is whether to target aid
according to household composition, as was done in the U.S. under the Aid to Families
with Dependent Children (AFDC) program, or to rely exclusively on means-testing, as
in Canada. Restricting aid to single mothers, for instance, has the potential to distort behaviour
along three demographic margins: marriage, fertility, and divorce.We contrast the
Canadian and the U.S. policies within an equilibrium model of household formation and
human capital investment on children. Policy differences we consider are eligibility, dependence
of transfers on the number of children, and generosity of transfers. Our simulations
indicate that the policy differences can account for the higher rate of single-parenthood
in the U.S. They also show that Canadian welfare policy is more effective for fostering
human capital accumulation among children from poor families. Interestingly, a majority
of agents in our benchmark economy prefers a welfare system that targets single mothers
(as the U.S. system does), yet (unlike the U.S. system) does not make transfers dependent on the number of children.
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Canadian Journal of Economics/Revue canadienne d'économique. 2009, vol. 42, nº 1, p 56-89