Welfare Reform, Saving, and Vehicle Ownership: Do Asset Limits and Vehicle Exemptions Matter?

Authors

James X. Sullivan, University of Notre Dame

Publication Date

5-1-2005

Series

Upjohn Institute Working Paper No. 05-117

**Published Version**

Article in Journal of Human Resources 41(1) (Winter 2006): 72-105.

DOI

10.17848/wp05-117

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.

Issue Date

May 2005

Subject Areas

UNEMPLOYMENT, DISABILITY, and INCOME SUPPORT PROGRAMS; Poverty and income support; Income support programs