Accounting for the Decline in AFDC Caseloads: Welfare Reform or Economic Growth?

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Accounting for the Decline in AFDC Caseloads: Welfare Reform or Economic Growth?

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J. P. Ziliak
D. N. Figlio
E. E. Davis
L. S. Connolly

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David Figlio

Abstract

Nationwide, AFDC caseloads have decreased by about 18 percent since March 1994, while some states, such as Wisconsin, Indiana, and Oregon, have seen declines of 40 percent or more. Two factors are frequently suggested as possible causes: state-level experiments with welfare reform and strong economic growth. In this paper, we use state-level monthly panel data from 1987 to 1996 to assess the importance of each of these factors by estimating a model of AFDC caseloads as a dynamic function of time-dependent state welfare reform variables (welfare waivers) and economic variables such as per capita employment. Our results from the dynamic model suggest that the decline in per capita AFDC caseloads is attributable largely to the economic growth of states and not to waivers from federal welfare policies. In the 26 states experiencing at least a 20 percent decline in per capita AFDC caseloads between 1993 and 1996, we attribute 78 percent of the decline to business-cycle factors and 6 percent to welfare waivers.

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Paper provided by University of Wisconsin Institute for Research on Poverty in its series Institute for Research on Poverty Discussion Papers with number 1151-97.

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Handle: RePEc:wop:wispod:1151-97

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Rebecca M. Blank, 1997. "What Causes Public Assistance Caseloads to Grow?," NBER Working Papers 6343, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Rebecca M. Blank, 2000. "What Causes Public Assistance Caseloads to Grow?," JCPR Working Papers 18, Northwestern University/University of Chicago Joint Center for Poverty Research. [Downloadable!]
Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November. [Downloadable!] (restricted)
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. [Downloadable!] (restricted)

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