Entry and Exit Transitions in a Government Transfer Program: The Case of Aid to Families with Dependent Children

This study analyzes determinants of entry and exit transitions in the Aid to Families with Dependent Children program using data from the Panel Study of Income Dynamics. The principal findings are that state-controlled policy parameters such as the AFDC "guarantee" (the payment received when earnings are zero) and the "entry income limit" (the income level at which families become eligible for AFDC payments) have a significant but asymmetric impact on these transitions. In addition, evidence on the relationship between wages and such transitions tends to support efforts at reducing welfare dependency through programs which raise wages.