=+3.18* Policy Application: AFDC versus a Negative Income Tax: Until the late 1990s, one of the primary federal welfare programs was Aid to Families with Dependent Children (AFDC). The program was structured similarly to the following example: Suppose you can work any number of hours you choose at

$5 per hour and you have no income other than that which you earn by working. If you have zero overall income, the government pays you a welfare payment of $25 per day. You can furthermore receive your full welfare benefits so long as you make no more than a total income of $5 per day. For every dollar you earn beyond $5, the government reduces your welfare benefits by exactly a dollar until your welfare benefits go to zero.