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The States, Welfare Reform, and the Business Cycle


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  • Howard Chernick
  • Therese J. McGuire


Our purpose in this paper is to speculate on the cyclicality of state fiscal responses under welfare reform. In particular, how will they respond during the next recession? We draw lessons from several literatures and present some new evidence. An important literature estimates the spending responses of governments to matching and block grants. We also summarize studies that examine the incentives states have to mimic their neighbors' spending levels, as well as studies of the substitutability of spending across programs. We conclude that the "price effect" of the shift from matching grants to block grants is likely to be small, at least in the short run; that the strength of the "neighbor effect", and thus the likelihood of a race to the bottom, is also small if not uncertain; and that the evidence that different welfare programs are close substitutes for one another in a state's budget is suggestive, but tentative.

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Bibliographic Info

Paper provided by Northwestern University/University of Chicago Joint Center for Poverty Research in its series JCPR Working Papers with number 67.

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Date of creation: 01 Jan 1999
Date of revision:
Handle: RePEc:wop:jopovw:67

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Cited by:
  1. Robert Moffitt, 2001. "The Temporary Assistance for Needy Families Program," Economics Working Paper Archive 463, The Johns Hopkins University,Department of Economics.
  2. Mark Henry & Willis Lewis & Lynn Reinschmiedt & Darren Hudson, 2000. "Reducing Food Stamp and Welfare Caseloads in the South: Are Rural Areas Less Likely to Succeed Than Urban Centers?," JCPR Working Papers 188, Northwestern University/University of Chicago Joint Center for Poverty Research.


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