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The States, Welfare Reform, and the Business Cycle


  • Howard Chernick
  • Therese J. McGuire


Our purpose in this paper is to speculate on the cyclicality of state fiscal responses under welfare reform. In particular, how will they respond during the next recession? We draw lessons from several literatures and present some new evidence. An important literature estimates the spending responses of governments to matching and block grants. We also summarize studies that examine the incentives states have to mimic their neighbors' spending levels, as well as studies of the substitutability of spending across programs. We conclude that the "price effect" of the shift from matching grants to block grants is likely to be small, at least in the short run; that the strength of the "neighbor effect", and thus the likelihood of a race to the bottom, is also small if not uncertain; and that the evidence that different welfare programs are close substitutes for one another in a state's budget is suggestive, but tentative.

Suggested Citation

  • Howard Chernick & Therese J. McGuire, 1999. "The States, Welfare Reform, and the Business Cycle," JCPR Working Papers 67, Northwestern University/University of Chicago Joint Center for Poverty Research.
  • Handle: RePEc:wop:jopovw:67
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    Cited by:

    1. Robert A. Moffitt, 2003. "The Temporary Assistance for Needy Families Program," NBER Chapters,in: Means-Tested Transfer Programs in the United States, pages 291-364 National Bureau of Economic Research, Inc.
    2. James P. Ziliak, 2015. "Temporary Assistance for Needy Families," NBER Chapters,in: Economics of Means-Tested Transfer Programs in the United States, volume 1, pages 303-393 National Bureau of Economic Research, Inc.
    3. Mark Henry & Willis Lewis & Lynn Reinschmiedt & Darren Hudson, 2000. "Reducing Food Stamp and Welfare Caseloads in the South: Are Rural Areas Less Likely to Succeed Than Urban Centers?," JCPR Working Papers 188, Northwestern University/University of Chicago Joint Center for Poverty Research.

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