NPC Working Paper #05-7
May 2005
Welfare Reform, Saving, and Vehicle Ownership: Do Asset Limits and Vehicle Exemptions Matter?
James X. Sullivan†
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Abstract
This paper examines whether AFDC/TANF asset tests affect the asset holdings of low-educated single mothers, exploiting variation in asset limits and exemptions across states and over time. There are important reasons to examine vehicle assets in this context. For example, vehicles make up a very significant share of total wealth for poor families, and the variation in vehicle exemptions over time and across states far exceeds the variation in asset limits. Consistent with other recent research, I find little evidence that asset limits have an effect on the amount of liquid assets that single mothers hold. However, I find evidence that vehicle exemptions do have an important effect on vehicle assets. The findings suggest that moving from a $1500 vehicle exemption to a full vehicle exemption increases the probability of owning a car by 20 percentage points for low-educated single mothers relative to a comparison group. Also, the results indicate that single mothers are not substituting vehicle equity for liquid assets in response to more relaxed restrictions on vehicles.
† I thank Joseph Altonji, Rebecca Blank, Thomas Deleire, Steven Haider, Jonah Gelbach, Mark Long, Bruce Meyer, Lucie Schmidt, Christopher Taber, Jennifer Ward-Batts, Jim Ziliak, and seminar participants at Michigan State University, the University of British Columbia, the University of Kentucky Center for Poverty Research, the University of Michigan, and the Upjohn Institute. I also thank Vladimir Sokolov for excellent research assistance. Much of the research for this project was done while I was a visiting scholar at the National Poverty Center at the University of Michigan. The Upjohn Institute for Employment Research and the Seng Foundation Endowment at the Institute for Scholarship in the Liberal Arts, College of Arts and Letters, University of Notre Dame provided generous support for this work. Contact Information: Department of Economics and Econometrics, University of Notre Dame, 447 Flanner Hall, Notre Dame, IN, 46556, sullivan.197@nd.edu.
