Publication Date: February 2018
Revision Date: November 2020
The 1996 US welfare reform introduced limits on years of welfare receipt. We show that this reduced program participation, raised employment for single mothers, and reduced divorce. A limited commitment, lifecycle model of labor supply, marriage and divorce, estimated on pre-reform data, replicates these eﬀects. A large part of the responses occur in anticipation of beneﬁt exhaustion, impacting primarily women with low potential earnings. The reform reduces lifetime utility of women, even allowing for the government savings, but has negligible eﬀects on men. The expectation of marriage attenuates the losses for women and an increased probability of single-motherhood raises them.
Keywords: Welfare reform, Life-cycle, Marriage and divorce, Time limits, Limited commitment, Intrahousehold allocations
JEL Classification Codes: D91, H53, J12, J21