40 PA R T I INTRODUCTION AND BACKGROUND

FIGURE 2-9

(a)
The Budget Constraint with TANF
Food
consumption Joelles original budget constraint is ABC.
(dollars) With a TANF guarantee of $5,000 and a
A
$20,000 benefit reduction rate of 50% in panel (a),
the budget constraint becomes ABD. Once
she has taken more than 1,000 hours of
Sl
op

leisure, the budget constraint flattens, and

e
=

she now can enjoy $5,000 of consumption

1
0

even with 2,000 hours of leisure at point

D. When the guarantee falls to $3,000 in
B
10,000
Slo panel (b), the budget constraint (AEF)
pe doesnt flatten until she takes more than
=
5
1,400 hours of leisure; now, with 2,000
6,000 D
5,000 hours of leisure, her consumption is only
$3,000 at point F.
3,000

C
0 1,000 1,400 2,000 Leisure (hours)

(b)
Food
consumption
(dollars)
A
$20,000
Sl
op
e
=
1
0

B
10,000
Slo
pe
=
5
E
6,000 D
5,000
F
3,000

C
0 1,000 1,400 2,000 Leisure (hours)

as the segment AE. This is because with the lower benefit guarantee of $3,000
and a benefit reduction rate of 50%, she is now no longer eligible for TANF
once she earns $6,000. If she takes more than 1,400 hours of leisure, the budg-
et constraint once again flattens: since she earns $10 in wages but loses $5 in
TANF benefits for each hour of work in this range, the slope of the budget
constraint along the segment EF (the net return to an hour of work) is 5.