Abstract
Consumer debt has risen at an average annual rate of 4.1 percent over the last 20 years and while that is not in itself shocking, when compared to the average annual growth of the family household income which has only grown by an annual average rate of 0.6 percent over the same time period the width of the gap between consumer debt and income growth is. Given this large outweigh, this study argues that the official poverty threshold should be revised and account for this modern debt conundrum. This study uses longitudinal data from the Panel Study of Income Dynamics and estimates the effect specific welfare policies have on alternative poverty measures. We contribute to the literature by statistically evaluating a new experimental poverty measure, debt poor, which accounts for the negative impact interest payments, on non-mortgage debt, have on a household’s disposable income. The 17 welfare policies analyzed in this study directly impact poverty and are grouped into three categories: eligibility requirements, financial incentives to work, and time limits. State-level, household-level and women specific entity and time fixed effects were specified for over 7,000 households residing in 48 different states during 2001-2009. The results indicate that financial incentives to work and time limits have significant and robust effects on alternative poverty measures. States with stricter time limit policies reduce poverty by 0.06-0.9 percentage points. While states with time limit exemptions for ill/incapacitated individuals increases poverty 0.07 percentage points. Suggesting that the existing welfare programs actually encourage individuals to remain on welfare Overall, the results are mixed. Nonetheless, the concept of welfare policies impacting debt poor households should not be ignored. Future studies should reevaluate an experimental poverty measure that considers interest payments on consumer debt.