This article explores issues of persistent poverty and income inequality. The major focus is that of the alleviation of poverty. Is there a framework that delineates the roles for government, market forces and self-reliance that can effect a reduction in the level of poverty? The Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) incorporated a new sense and importance to these roles. The effectiveness of this major welfare reform law would be measured in terms of improved well-being of those who would leave the welfare caseloads either voluntarily or involuntarily. This article uses the new welfare law as a vehicle to see the links between a new policy directive and the ways in which economic incentives and disincentives, "the carrots and sticks," might change the behavior of welfare recipients such that the caseloads of the aid to Families with Dependent Children (AFDC) and Temporary Assistance to Needy Families (TANF) would be reduced. AFDC was an entitlement program designed to provide assistance to single parent (mostly female) with children families. The major results of welfare reform in the literature, particularly in reference to the comprehensive review in the Rebecca Blank article (Blank 2002), are reviewed in terms of reduction of poverty, particularly in the female-headed families with children. A conceptual framework of efficiency and fairness is used to determine the appropriate roles for economic analysis (efficiency) and for government policies (equity or redistribution). The author describes the effects of using alternative measures of income, the effects of taxes and transfers on income, the distributional effects of changes of U. S. tax policies, poverty measures and the changes in household income as well as earnings and labor productivity. An analysis of the effects of welfare reform in the United States is compared with similar reforms in Canada and the United Kingdom. The author also analyzes the relationship between changes in household income and changes in income inequality. (Contains 1 figure, 5 tables, and 1 footnote.)