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Interrelationships among Public Assistance Expenditures: An Empirical Analysis of the Welfare System

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  • Laura S. Connolly

    (Oregon State University)

Abstract

This article uses vector autoregression techniques with a panel data set to test for interdependencies between spending on the Aid to Families With Dependent Children AFDC) program and expenditures on three other major public assistance programs: Medicaid, food stamps, and Supplemental Security Income. Tests of Granger causality reveal that there are spillover effects in both directions among these programs, suggesting that substantial feedback effects are likely. The author uses the estimated model to simulate the effects of one-time spending decreases on either side. The simulation, which includes both direct and indirect effects, shows that these spending cuts result in long-term decreases in expenditures on the affected program. However, changes in AFDC spending are likely to be at least partially offset by changes in one or more of the other programs. Similarly, budget cuts in the other programs can result in increased AFDC spending. This suggests that the new welfare law may not produce the budgetary savings expected by its sponsors.

Suggested Citation

  • Laura S. Connolly, 1999. "Interrelationships among Public Assistance Expenditures: An Empirical Analysis of the Welfare System," Public Finance Review, , vol. 27(4), pages 396-417, July.
    • Handle: RePEc:sae:pubfin:v:27:y:1999:i:4:p:396-417
    DOI: 10.1177/109114219902700403
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    References listed on IDEAS

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    1. Steven Craig & Robert P. Inman, 1986. "Education, Welfare and the "New" Federalism: State Budgeting in a Federalist Public Economy," NBER Chapters, in: Studies in State and Local Public Finance, pages 187-228, National Bureau of Economic Research, Inc.
    2. Rebecca M. Blank, 2001. "What Causes Public Assistance Caseloads to Grow?," Journal of Human Resources, University of Wisconsin Press, vol. 36(1), pages 85-118.
    3. McCarty, Therese A & Schmidt, Stephen J, 1997. "A Vector-Autoregression Analysis of State-Government Expenditure," American Economic Review, American Economic Association, vol. 87(2), pages 278-282, May.
    4. Howard Chernick, 1998. "Fiscal Effects of Block Grants for the Needy: An Interpretation of the Evidence," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 5(2), pages 205-233, May.
    5. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, vol. 56(6), pages 1371-1395, November.
    6. J. P. Ziliak & D. N. Figlio & E. E. Davis & L. S. Connolly, "undated". "Accounting for the Decline in AFDC Caseloads: Welfare Reform or Economic Growth?," Institute for Research on Poverty Discussion Papers 1151-97, University of Wisconsin Institute for Research on Poverty.
    7. Moffitt, Robert, 1990. "Has State Redistribution Policy Grown More Conservative?," National Tax Journal, National Tax Association;National Tax Journal, vol. 43(2), pages 123-142, June.
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    Cited by:

    1. Schmidt, Stephen J. & McCarty, Therese A., 2008. "Estimating permanent and transitory income elasticities of education spending from panel data," Journal of Public Economics, Elsevier, vol. 92(10-11), pages 2132-2145, October.

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