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Asymmetric Policy Interaction among Subnational Governments: Do States Play Welfare Games?

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  • D. N. Figlio
  • V. W. Kolpin
  • W. E. Reid

Abstract

This paper explores the possibility that states respond asymmetrically to increases versus decreases in their neighboring states’ welfare benefit levels. We present a theoretical model suggesting that states respond more to decreases than to increases in their neighbors’ benefit levels. To test this proposition empirically, we use a panel of annual state-level data from 1983 to 1994 for each of the contiguous United States and the District of Columbia, and we observe changes in state demographic and economic characteristics as well as changes in state welfare benefits. We find substantial empirical evidence that uniformly supports our argument. State responses to neighbor benefit decreases tend to be at least twice as large as their responses to neighbor benefit increases. Our empirical results are robust to modeling neighbor benefits as endogenous. Our results, therefore, have substantial implications for public policy in the wake of the increased decentralization of welfare policy associated with the welfare reforms of 1996.

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Bibliographic Info

Paper provided by University of Wisconsin Institute for Research on Poverty in its series Institute for Research on Poverty Discussion Papers with number 1154-98.

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Handle: RePEc:wop:wispod:1154-98

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  1. 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.
  2. Brueckner, Jan K. & Saavedra, Luz A., 2001. "Do Local Governments Engage in Strategic Property-Tax Competition?," National Tax Journal, National Tax Association, vol. 54(n. 2), pages 203-30, June Cita.
  3. Charles Brown & Wallace E. Oates, 1987. "Assistance to the Poor in a Federal System," NBER Working Papers 1715, National Bureau of Economic Research, Inc.
  4. Besley, Timothy & Case, Anne, 1995. "Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition," American Economic Review, American Economic Association, vol. 85(1), pages 25-45, March.
  5. Case, Anne C. & Rosen, Harvey S. & Hines, James Jr., 1993. "Budget spillovers and fiscal policy interdependence : Evidence from the states," Journal of Public Economics, Elsevier, vol. 52(3), pages 285-307, October.
  6. J. R. Walker, . "Migration amoung low-income households: Helping the witch doctors reach consensus," Institute for Research on Poverty Discussion Papers 1031-94, University of Wisconsin Institute for Research on Poverty.
  7. 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.
  8. Edward M. Gramlich, 1987. "Cooperation and competition in public welfare policies," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 6(3), pages 417-431.
  9. Wildasin, David E, 1991. "Income Redistribution in a Common Labor Market," American Economic Review, American Economic Association, vol. 81(4), pages 757-74, September.
  10. Brueckner, Jan K., 1998. "Testing for Strategic Interaction Among Local Governments: The Case of Growth Controls," Journal of Urban Economics, Elsevier, vol. 44(3), pages 438-467, November.
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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. Bruce D. Meyer, 1998. "Do the Poor Move to Receive Higher Welfare Benefits?," JCPR Working Papers 58, Northwestern University/University of Chicago Joint Center for Poverty Research.

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