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True State Dependence In Monthly Welfare Participation:A Nonexperimental Analysis

Author

Listed:
  • Hilary W. Hoynes
  • Kenneth Y. Chay
  • Dean Hyslop

    (Department of Economics, University of California Davis)

Abstract

This paper provides an empirical evaluation of true state dependence in welfare participation using unique administrative data from California that is measured at the monthly frequency, which coincides with the welfare eligibility period and so is free of time aggregation bias. The analysis uses first- and second-order dynamic conditional logit models that non-parametrically control for permanent unobserved heterogeneity to test for state dependence in welfare behavior. The second-order model also absorbs individual-specific first-order Markov chains, and provides a more robust test for state dependence in high frequency data. The results using the first-order model show substantial first-order state dependence in monthly welfare participation. Absorbing heterogeneous first-order effects, the hypothesis of no second-order state dependence is also easily rejected. This suggests that past welfare participation predicts future participation, given unrestricted effects of both the present state and unobserved heterogeneity, and provides substantive evidence of duration dependence at the individual level.

Suggested Citation

  • Hilary W. Hoynes & Kenneth Y. Chay & Dean Hyslop, 2004. "True State Dependence In Monthly Welfare Participation:A Nonexperimental Analysis," Working Papers 533, University of California, Davis, Department of Economics.
  • Handle: RePEc:cda:wpaper:05-33
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    File URL: http://wp.econ.ucdavis.edu/05-33.pdf
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    References listed on IDEAS

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    1. Bernard Fortin & Guy Lacroix, 1997. "Welfare Benefits, Minimum Wage Rate and the Duration of Welfare Spells: Evidence from a Natural Experiment in Canada," CIRANO Working Papers 97s-25, CIRANO.
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    4. J. Heckman & B. Singer, 1984. "The Identifiability of the Proportional Hazard Model," Review of Economic Studies, Oxford University Press, vol. 51(2), pages 231-241.
    5. Bo E. Honoré, 1993. "Identification Results for Duration Models with Multiple Spells," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 241-246.
    6. Gottschalk, Peter & Moffitt, Robert A, 1994. "Welfare Dependence: Concepts, Measures, and Trends," American Economic Review, American Economic Association, vol. 84(2), pages 38-42, May.
    7. G. Sandefur & S. Cook, "undated". "Duration of Public Assistance Receipt: Is Welfare a Trap?," Institute for Research on Poverty Discussion Papers 1129-97, University of Wisconsin Institute for Research on Poverty.
    8. Blank, Rebecca M., 1989. "Analyzing the length of welfare spells," Journal of Public Economics, Elsevier, vol. 39(3), pages 245-273, August.
    9. Honore, Bo E, 1990. "Simple Estimation of a Duration Model with Unobserved Heterogeneity," Econometrica, Econometric Society, vol. 58(2), pages 453-473, March.
    10. Plant, Mark W, 1984. "An Empirical Analysis of Welfare Dependence," American Economic Review, American Economic Association, vol. 74(4), pages 673-684, September.
    11. Bo E. Honoré & Ekaterini Kyriazidou, 2000. "Panel Data Discrete Choice Models with Lagged Dependent Variables," Econometrica, Econometric Society, vol. 68(4), pages 839-874, July.
    12. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
    13. Heckman, James J, 1991. "Identifying the Hand of the Past: Distinguishing State Dependence from Heterogeneity," American Economic Review, American Economic Association, vol. 81(2), pages 75-79, May.
    14. Chris Elbers & Geert Ridder, 1982. "True and Spurious Duration Dependence: The Identifiability of the Proportional Hazard Model," Review of Economic Studies, Oxford University Press, vol. 49(3), pages 403-409.
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    Citations

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    Cited by:

    1. Marianne P. Bitler & Jonah B. Gelbach & Hilary W. Hoynes, 2006. "What Mean Impacts Miss: Distributional Effects of Welfare Reform Experiments," American Economic Review, American Economic Association, vol. 96(4), pages 988-1012, September.
    2. Yi-Ping Tseng & Ha Vu & Roger Wilkins, 2008. "Dynamic Properties of Income Support Receipt in Australia," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 41(1), pages 32-55, March.
    3. Anna Christina D'Addio & Bo E. Honoré, "undated". "Duration Dependence and Timevarying Variables in Discrete Time Duration Models," Economics Working Papers 2002-13, Department of Economics and Business Economics, Aarhus University.
    4. Kristin F. Butcher & Robert J. LaLonde, 2006. "Female Offenders Use of Social Welfare Programs Before and After Jail and Prison: Does Prison Cause Welfare Dependency?," Working Papers 0718, Harris School of Public Policy Studies, University of Chicago.
    5. Timothy J. Halliday, 2008. "Heterogeneity, state dependence and health," Econometrics Journal, Royal Economic Society, vol. 11(3), pages 499-516, November.
    6. David Blau, 2003. "Child Care Subsidy Programs," NBER Chapters,in: Means-Tested Transfer Programs in the United States, pages 443-516 National Bureau of Economic Research, Inc.
    7. Regina T. Riphahn & Christoph Wunder, 2016. "State dependence in welfare receipt: transitions before and after a reform," Empirical Economics, Springer, vol. 50(4), pages 1303-1329, June.

    More about this item

    Keywords

    Binary response panel data; state dependence; unobserved heterogeneity; initialconditions; conditional logit models;

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities

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