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Bitler presents to Fed on distributional effects of monetary policy

Does the U.S. social safety net protect families when the overall economy is at its worst? UC Davis Economics Professor Marianne Bitler presented her work on cyclicality of the safety net at a Minneapolis Federal Reserve Bank conference on distributional effects of monetary policy, as part of a broad effort announced by the Federal Reserve System "to review how it formulates, conducts, and communicates monetary policy."

Over the past 2 decades, the US has moved from an safety net for low income families with children where benefits were independent of work status to an in-work safety net, where benefits depend on work status or hours worked, as a result of the welfare reforms of the mid- to late 1990s and the expansion of the Earned Income Tax Credit (EITC). While the EITC has been shown to have positive effects on labor supply and health for single mother headed families and infants, economists and policymakers have not known whether it would also be countercyclical, which would mean the program could be especially helpful to protect low-income families in the event of recession.

Bitler, along with coauthors Hilary Hoynes (UC Berkeley) and Elira Kuka (SMU) find that the EITC benefits may be somewhat countercyclical for families headed by married couples, though not for those headed by single mothers.