Timothée Demont : timothee.demont[at]univ-amu.fr
Roberta Ziparo : rziparo[at]gmail.com
This paper develops a dynamic model of marriage, labor supply, welfare participation, savings and divorce under limited commitment and uses it to understand the impact of welfare reforms, particularly the time-limited eligibility, as in the TANF program. In the model, welfare programs can a ect whether marriage and divorce take place, the extent to which people work as single or as married individuals, as well as the allocation of resources within marriage. The model thus provides a framework for estimating not only the short-term e ects of welfare reforms on labor supply, but also the extent to which welfare bene ts a ect family formation and the way that transfers are allocated within the family. This is particularly important because many of these benefits are ultimately designed to support the well-being of mothers and children. The limited commitment framework in our model allows us to capture the e ects on existing marriages as well as marriages that will form after the reform has taken place, offering a better understanding of transitional impacts as well as longer run e ects. Using variation provided by the introduction of time limits in welfare benefits eligibility following the Personal Responsibility and Work Opportunity Act of 1996 (welfare reform) and data from the Survey of Income and Program Participation between 1985 and 2011, we provide reduced form evidence of the importance of these reforms on a number of outcomes relevant to our model. We then estimate the parameters of the model using the pre-reform data, and show that such a model can replicate the main reduced form estimates. We use the model to perform welfare and counterfactual exercises.