Welfare Reform and Food Stamp Caseload Dynamics

Abstract

We use state-level panel data for federal fiscal years 1980–1998 to estimate the impacts of welfare reform and the business cycle on food stamp caseloads. The model we employ is a dynamic function of past caseloads, economic factors, AFDC and Food Stamp Program policies, political factors, AFDC caseload levels, and unobserved fixed and trending heterogeneity. Our results suggest that the robust economy has substantially influenced the recent decline in food stamp caseloads, but that the estimated aggregate effect of welfare reform is modest—we attribute around 45 percent of 1994–1998 decline to the macroeconomy and about 5 percent to welfare reform. We do find substantial heterogeneity in the impact of AFDC waiver policies. States with JOBS sanctions policies but not family cap or earnings disregard waivers can expect a larger long-run decline in caseloads than those states with all three policies. In addition, we do find some evidence, albeit weaker, that states with waivers for unemployed able-bodied adults without dependents can expect higher caseload levels than states without the waivers and that the Electronic Benefits Transfer program is leading to food stamp caseload declines. An important finding of this study is that modeling food stamp caseload dynamics has implications for the estimated effects of policy changes and economic factors—when dynamic models are employed, we observe substantially reduced welfare-reform effects but significantly increased effects of the macroeconomy on food stamp caseloads. These results are robust to models that permit the simultaneous determination of AFDC and food stamp caseloads.