CRIEFF Discussion Paper Number 0901
Unintended Consequences of Welfare Reform:
The Case of Divorced Parents
Marco Francesconi,
Helmut Rainer and Wilbert van der Klaauw
Abstract
This paper formulates a model to examine the effects of
changes in tax-benefit policy on the behavior of divorced parents and the
well-being of children in single-parent households. Noncustodial
parents choose the level of a child support payment to transfer to custodians.
These, in turn, decide over child good expenditures and the allocation of time
between market work and parenting. In general, ex-spouses fail to achieve an
efficient allocation of their resources. On the custodial side, there are
inefficiently high levels of labor supply and inefficiently low levels of
expenditures on child goods, while on the noncustodial
side child support payments are suboptimally low. Our
results rationalize the adverse effects that welfare reforms might have on
divorced parents and their children. Such adverse effects may arise because an
increase in the custodian’s effective wage, either through lower marginal
income tax rates or higher childcare subsidies, reinforces the inefficiencies
of divorced parents’ decisions: that is, such an increase further depresses
child support transfers from noncustodial parents and
induces custodial parents to work even more. We explore several extensions of
this model, link our findings to the existing empirical literature on the
impacts of welfare reform, and discuss the implications of our results for
policy and further economic analysis.
JEL Classifications: D13, H31, J22.
Keywords:
Non-intact families; In-work benefit reform; Child care; Child support; Noncooperation.
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