Because government transfers provid

Because government transfers provide families with cash and other benefits, they can have a direct impact on income and poverty.
They can also have an indirect effect, by changing individuals’ behavior (Sawhill, 1988).
While an extensive literature investigates the labor supply effects of government transfers— particularly the former AFDC program—the literature on the impact of these programs on poverty tends to focus on direct impacts.
9 Since the behavioral responses predicted by economic theory are expected to lead to reductions in income as government transfers make it less attractive to earn income,10 estimates produced by these studies are likely an upper bound.
Nevertheless, because of the
structure of government benefits and the definition of poverty, even the direct
effect of government transfers on official poverty rates—which we argue is an upper
bound effect—is expected to be relatively small.