The effects of welfare vehicle asset rules on vehicle assets

Abstract

Before 1996, households were typically ineligible for welfare if they had assets worth more than $1000, where $1500 from each vehicle's value was excluded from this determination. However, the 1996 welfare reform act began allowing states to increase their asset limits and vehicle exclusions. This may prompt low-income households to reallocate resources to or from vehicles. We examine the effects of state vehicle asset rules on vehicle assets. Results show that liberalizing asset rules increases vehicle assets and that this increase is driven largely by eligible individuals increasing vehicle assets, with no evidence indicating that ineligible individuals reduce vehicle assets to become eligible.

Keywords:

• I38 – Government policy
• provision and effects of welfare programs
• vehicle assets
• welfare eligibility
• asset rules

Notes

¹ In addition to the effects of government assistance programs described here, the literature suggests that low-income households have lower savings rates due to time inconsistent preferences and impatience (Lawrance, 1991; Laibson, 1997; Angeletos et al., 2001).

² Others have studied the effects of other assistance programs’ eligibility criteria on savings. For example, Neumark and Powers (1998) examine the effects of Supplemental Security Income (SSI) on the savings of the elderly, Gruber and Yelowitz (1999) examine the effects of Medicaid program eligibility on savings, and Engen and Gruber (2001) find that unemployment insurance benefits reduce savings. In related work, Ziliak (2003) finds that asset-tested transfer income reduces poor households’ liquid assets as measured by wealth-to-permanent income ratios. He argues this is evidence of how government assistance program asset tests discourage saving.

³ Hurst and Ziliak do estimate the effect of vehicle exemption rules on liquid assets in one model specification; they do not estimate the effect of this rule change on vehicle ownership – only on whether there has been a positive change in vehicle equity.

⁴ This is similar to the literature (Sullivan, 2006). Powers (1998) examines female-headed households.

⁵ Again, this follows the literature (Sullivan, 2006), which argues that single mothers and single women without children with low education face many of the same opportunities and limitations in the labour market. Powers (1998) does not use a comparison group.

⁶ These researchers cite studies that show statistically insignificant effects of welfare on marriage and/or fertility. For example, see Moffitt (1992, 1994) and Hoynes (1997a, b).

⁷ The panel is, however, unbalanced.

⁸ Note, however, that Meyer and Rosenbaum (2001) suggest any attempt to approximate welfare eligibility may be only roughly accurate because program characteristics used in practice may be different from statutory program characteristics. Further, Meyer and Rosenbaum note that program recipients may be reluctant to report their income and assets accurately.

⁹ This follows the methodology of Hurst and Ziliak (2006) and Sullivan (2006).

¹⁰ We also estimate the models using only the treatment group of single mothers. The results are somewhat different than those reported. We choose not to focus on the interpretation of these results because, without a comparison group, they are unable to account for state-specific time trends that might be correlated with the rule changes.

¹¹ As noted in the theory section, such individuals might also increase their vehicle assets as the motivation to save for precautionary reasons changes and household resources increase. This is also true for those for whom the traditional vehicle asset exemption of $1500 is nonbinding.

¹² Of course, those with vehicle market value at or below $1500 could be ineligible for welfare benefits due to the income test or other types of assets, as could those with vehicle market value above $1500. If such individuals have significant income or nonvehicle assets, then liberalizing the vehicle asset rule might have no effect because it does not change eligibility.

¹³ We do not present the effects of the welfare asset limit as in preceding tables because these results are statistically insignificant.