The Distributional Effects of Devolution in the U.S. Welfare Reform

The passage of the PRWORA in 1996 devolved responsibility for the design of welfare programs from the federal to state governments in the U.S. Some of the strategies implemented to achieve the main goals of the reform –promoting higher levels of labor participation and decreasing levels of welfare dependency– might have had the effects of reducing the protection received by the most vulnerable households and increasing differences in benefit levels across states. We estimate these effects using TANF data covering the two decades after the PRWORA's enactment. We measure the contribution of each state to inequality in adequacy rates. We provide an interpretation of the decomposition of the change in inequality in adequacy rates in terms of progressivity and re-ranking components, and we analyze the convergence in TANF adequacy rates. We also estimate the conditional convergence of adequacy ratios with respect to the change in labor participation, poverty rates, and caseloads. We find that differences in adequacy rates increased and that a downward divergence path took place ensuing devolution of welfare reform in the U.S.