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The Role of Functional Form in Estimating the Effect of a Cash-Only Food Stamp Program

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  • Levedahl, J. William
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    Larger marginal impacts on household food spending come from food stamps than from equivalent cash income, according to previous studies. These studies have been limited, however, in using food expenditure equations that are linear in the coefficients, placing prior constraints on the estimated marginal propensities to spend (MPS) from cash and from stamps. This article re-examines the earlier MPS estimates in light of a more general and flexible food expenditure equation, comparing estimates from a common data set under alternative functional forms. The article estimates changes in food spending that would result under each functional form from "cashing out" food stamps, and replacing stamps with equivalent cash benefits. Results show that MPS estimates vary widely depending on functional form, past estimates tended to substantially exaggerate the cash-out effect in reducing food spending, and the most general, consistent, and flexible forms show a 10-cent reduction in food spending for each dollar of food-stamp benefit shifted to a cash payment.

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    Article provided by United States Department of Agriculture, Economic Research Service in its journal Journal of Agricultural Economics Research.

    Volume (Year): (1991)
    Issue (Month): 2 ()

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    Handle: RePEc:ags:uersja:138264
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    1. Olsen, Edgar O, 1971. "Some Theorems in the Theory of Efficient Transfers," Journal of Political Economy, University of Chicago Press, vol. 79(1), pages 166-176, Jan.-Feb..
    2. Smallwood, David M. & Blaylock, James R., 1985. "Analysis Of Food Stamp Program Participation And Food Expenditures," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 10(01), July.
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