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Should we expect a race to the bottom in welfare benefits? Evidence from a multistate panel, 1979-1995

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  • Smith, Mark W

Abstract

Evidence exists that welfare recipients migrate between states to seek more generous benefits, potentially leading states to lower AFDC benefits to avoid such welfare migration. Taken further, this raises the specter of states competitively lowering benefits in reaction to similar moves by other states. The naïve model of policymaking assumes that benefits are solely a function of state characteristics. If benefits depend on the threat of welfare migration or other interstate competition, however, one must account for possible spillovers. This paper presents tests for the presence of welfare-policy spillovers in a panel of 47 states over the period 1979-1995. I find weak evidence of spillovers even in the presence of state fixed effects and political and budgetary-control variables.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 10125.

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Date of creation: May 1999
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Handle: RePEc:pra:mprapa:10125

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Keywords: income support; United States; welfare benefits; Temporary Assistance to Needy Families; Aid to Families with Dependent Children; spatial spillovers;

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  1. Peltzman, Sam, 1980. "The Growth of Government," Journal of Law and Economics, University of Chicago Press, vol. 23(2), pages 209-87, October.
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  4. Figlio, David N. & Kolpin, Van W. & Reid, William E., 1999. "Do States Play Welfare Games?," Journal of Urban Economics, Elsevier, vol. 46(3), pages 437-454, November.
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  13. Robert Moffitt & David Ribar & Mark Wilhelm, 1998. "The Decline of Welfare Benefits in the US: The Role of Wage Inequality," Economics Working Paper Archive 373, The Johns Hopkins University,Department of Economics.
  14. 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.
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  16. 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.
  17. Murphy, Kevin M & Topel, Robert H, 1985. "Estimation and Inference in Two-Step Econometric Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(4), pages 370-79, October.
  18. 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.
  19. Christopher B. Colburn, 1993. "Work Requirements and Income Transfers," Public Finance Review, , vol. 21(2), pages 141-162, April.
  20. Roubini, Nouriel & Sachs, Jeffrey D., 1989. "Political and economic determinants of budget deficits in the industrial democracies," European Economic Review, Elsevier, vol. 33(5), pages 903-933, May.
  21. Blank, Rebecca M., 1985. "The impact of state economic differentials on household welfare and labor force behavior," Journal of Public Economics, Elsevier, vol. 28(1), pages 25-58, October.
  22. Case, Anne C, 1991. "Spatial Patterns in Household Demand," Econometrica, Econometric Society, vol. 59(4), pages 953-65, July.
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