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Measuring Poverty: A New Approach
standard could differ from a poverty standard and, more generally, why the design of an assistance program could deviate from the goal of helping everyone who is classified as poor. First, scarce budget resources (and competition for them from other programs) may well limit the extent to which payments can approach the poverty threshold; in state-federal programs (such as AFDC), the nature of the state-federal cost sharing provisions has an important effect on funding constraints.
Second, there may be reasons to target payments on particular groups in order to maximize the effectiveness of limited funds and achieve other policy goals. For example, because of the social cost of children growing up in economic deprivation, it may be sensible to concentrate assistance dollars on poor families with children, even though other groups have measured need that is just as great. Or it may make sense to concentrate scarce assistance dollars on the poorest families, even though helping the families closest to the poverty line would achieve the fastest reduction in measured need.
Third, the existence of multiple assistance programs can affect the level of the benefit standard that makes sense for any one of them. For example, AFDC interacts with food stamps and public housing, among other programs, and it makes little sense to think of an AFDC benefit standard in isolation from other programs. Finally, incentive effects drive a wedge between measured need and the amount of program dollars needed to alleviate need. For example, families who are provided benefits designed to raise them above the poverty line may reduce their work effort so that the net effect is to leave them in poverty. Behavioral effects of program benefits are, indeed, the reason that it is misleading to describe the aggregate ''poverty gap"—the difference between the poverty line and a family's resources, aggregated over all families—as the dollar amount that the government would have to spend to eliminate poverty.
The question of incentives is one of the most difficult issues that policy makers face in designing assistance programs to serve multiple goals, such as alleviating need while containing costs and discouraging dependency. The task is made more difficult by the fact that research findings on incentive effects are sometimes incomplete or inconclusive. Issues of program incentives have been at the center of the policy debate about AFDC, which is directed to families that the public would like to see increasingly responsible for their own support. Consequently, there has been considerable experimentation with changes in benefit levels and formulas for calculating disposable income to try to induce AFDC families to become more stable and self-supporting. To date, results show limited effects of changes in benefit levels and the tax rate on earnings on such behaviors as work effort. The findings are not yet available on more recent state initiatives, such as not increasing benefits when another child is born or reducing benefits if parents do not stay in school or fail to have their children vaccinated. It is important also to note that other