John Knowles: Working Papers

Title: Why is the Rate of Single Parenthood Lower in Canada than in the U.S.? A Dynamic Equilibrium Analysis of Welfare Policies

Authors: Nezih Guner and John Knowles

Forthcoming, Canadian Journal of Economics

First Version: May, 2000

Abstract:

A critical aspect of welfare policies is whether they should target certain groups, as Aid to
Families with Dependent Children (AFDC) program did in the U.S., or be universal with financial
need being the only criteria, as in Canada. We contrast the Canadian and the U.S. policies within
an equilibrium model of household formation and human capital investment on children. Policy
differences we consider are: eligibility, dependence of transfers on the number of children, and
generosity of transfers. Our simulations indicate that the policy differences can account for the
higher rate of single-parenthood in the U.S. They also show that Canadian welfare policy is more
effective for fostering human capital accumulation among children from poor families. Interestingly,
a majority of agents in our benchmark economy prefers a welfare system that targets single mothers
(as the U.S. system does), yet does not (unlike the U.S. system) make transfers dependent on the
number of children.

Journal of Economic Literature Classification Numbers: E10, I38, J12, J13.