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Fiscal Effects of Block Grants for the Needy: An Interpretation of the Evidence

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  • Howard Chernick

Abstract

In 1996 the United States revamped its welfare system by eliminating the entitlement to cash benefits under Aid to Families with Dependent Children (AFDC), and replacing it by Temporary Assistance to Needy Families (TANF). Federal financing was converted from open-ended matching grants to fixed block grants. This paper reviews the evidence on the likely impact of block grants for the needy on average benefit levels, total redistributional outlays, and on differentials across states. The econometric evidence on state responses to federal incentives for spending on the needy varies enormously. An evaluation of this evidence, together with an examination of state responses to the federalization of aid to the elderly, blind, and disabled through the Supplementary Security Income program, suggests that in the long run the federal changes will substantially decrease the amount of direct cash redistribution in the United States. A reasonable guess is that average benefits to the needy will be 15 to 30 percent smaller than under current law, while total spending on cash grants could decline by as much as 35 percent. While interstate competition will act to reduce benefit differentials across states, this tendency will be offset by differential matching rate effects. An extreme ‘race to the bottom,’ with a total withering of the transfer state, is unlikely to occur. Copyright Kluwer Academic Publishers 1998

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File URL: http://hdl.handle.net/10.1023/A:1008694405571
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Bibliographic Info

Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 5 (1998)
Issue (Month): 2 (May)
Pages: 205-233

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Handle: RePEc:kap:itaxpf:v:5:y:1998:i:2:p:205-233

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Web page: http://www.springerlink.com/link.asp?id=102915

Related research

Keywords: Intergovernmental Relations; Welfare and Poverty; Government Expenditures and Health; Government Expenditures and Welfare Programs;

References

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  1. Howard Chernick, 1982. "Block grants for the needy: The case of AFDC," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 1(2), pages 209-222.
  2. Edward M. Gramlich & Henry J. Aaron & Michael C. Lovell, 1982. "An Econometric Examination of the New Federalism," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 13(2), pages 327-370.
  3. Moffitt, Robert, 1990. "Has State Redistribution Policy Grown More Conservative?," National Tax Journal, National Tax Association, vol. 43(2), pages 123-42, June.
  4. Phillip B. Levine & David J. Zimmerman, 1999. "An empirical analysis of the welfare magnet debate using the NLSY," Journal of Population Economics, Springer, vol. 12(3), pages 391-409.
  5. Shroder, Mark, 1995. "Games the States Don't Play: Welfare Benefits and the Theory of Fiscal Federalism," The Review of Economics and Statistics, MIT Press, vol. 77(1), pages 183-91, February.
  6. Edward M. Gramlich & Deborah S. Laren, 1984. "Migration and Income Redistribution Responsibilities," Journal of Human Resources, University of Wisconsin Press, vol. 19(4), pages 489-511.
  7. Blank, Rebecca M., 1988. "The effect of welfare and wage levels on the location decisions of female-headed households," Journal of Urban Economics, Elsevier, vol. 24(2), pages 186-211, September.
  8. Howard Chernick, 1992. "A Model of the Distributional Incidence of State and Local Taxes," Public Finance Review, , vol. 20(4), pages 572-585, October.
  9. Michael Wiseman, 1996. "State strategies for welfare reform: The Wisconsin story," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 15(4), pages 515-546.
  10. Orr, Larry L, 1976. "Income Transfers as a Public Good: An Application to AFDC," American Economic Review, American Economic Association, vol. 66(3), pages 359-71, June.
  11. Robert K. Triest, 1997. "Regional differences in family poverty," New England Economic Review, Federal Reserve Bank of Boston, issue Jan, pages 3-17.
  12. Plotnick, Robert D, 1986. "An Interest Group Model of Direct Income Redistribution," The Review of Economics and Statistics, MIT Press, vol. 68(4), pages 594-602, November.
  13. David C. Ribar & Mark O. Wilhelm, 1999. "The Demand for Welfare Generosity," The Review of Economics and Statistics, MIT Press, vol. 81(1), pages 96-108, February.
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Citations

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Cited by:
  1. Robert Haveman & Barbara Wolfe, 2000. "Errata," International Tax and Public Finance, Springer, vol. 7(3), pages 369-371, May.
  2. Rebecca M. Blank, 2002. "Evaluating Welfare Reform in the United States," NBER Working Papers 8983, National Bureau of Economic Research, Inc.
  3. Allers, Maarten A. & Toolsema, Linda A., 2012. "Welfare financing: Grant allocation and efficiency," Research Report 12004-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  4. R. Haveman & B. Wolfe, . "Welfare to Work in the U.S.: A Model for Other Nations?," Institute for Research on Poverty Discussion Papers 1159-98, University of Wisconsin Institute for Research on Poverty.
  5. Robert Moffitt, 2001. "The Temporary Assistance for Needy Families Program," Economics Working Paper Archive 463, The Johns Hopkins University,Department of Economics.
  6. Chernick, Howard, 2000. "Federal Grants and Social Welfare Spending: Do State Responses Matter?," National Tax Journal, National Tax Association, vol. 53(n. 1), pages 143-52, March.
  7. Gerald Carlino & Robert P. Inman, 2013. "Macro fiscal policy in economic unions: states as agents," Working Papers 13-40, Federal Reserve Bank of Philadelphia.
  8. Michael Baker & Abigail Payne, 1998. "An empirical study of matching grants: The "cap on CAP"," Working Papers msmart-98-03, University of Toronto, Department of Economics.
  9. Marcel Thum & Thomas Fester & Andreas Kappler & Helmut Seitz, 2005. "Öffentliche Infrastruktur und kommunale Finanzen : Gutachten im Auftrag des Bundesministeriums für Verkehr, Bau- und Wohnungswesen und des Bundesamtes für Bauwesen und Raumordnung," ifo Dresden Studien, Ifo Institute for Economic Research at the University of Munich, number 37.
  10. Robert Moffitt, 1999. "Explaining Welfare Reform: Public Choice and the Labor Market," International Tax and Public Finance, Springer, vol. 6(3), pages 289-315, August.
  11. Howard Chernick, 1999. "State Fiscal Substitution Between the Federal Food Stamp Program and AFDC, Medicaid, and SSI," JCPR Working Papers 123, Northwestern University/University of Chicago Joint Center for Poverty Research.
  12. Katherine Baicker, 2001. "Extensive or Intensive Generosity? The Price and Income Effects of Federal Grants," NBER Working Papers 8384, National Bureau of Economic Research, Inc.
  13. Baicker, Katherine, 2001. "Government decision-making and the incidence of federal mandates," Journal of Public Economics, Elsevier, vol. 82(2), pages 147-194, November.
  14. Marton, James & Wildasin, David E., 2007. "State government cash and in-kind benefits: Intergovernmental fiscal transfers and cross-program substitution," Journal of Urban Economics, Elsevier, vol. 61(1), pages 1-20, January.
  15. Santiago Lago-Penas, 2006. "Capital grants and regional public investment in Spain: fungibility of aid or crowding-in effect?," Applied Economics, Taylor & Francis Journals, vol. 38(15), pages 1737-1747.

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