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Spending On Social Welfare Programs In Rich And Poor States


  • Richard Toikka

    (The Lewin Group)

  • Thomas Gais

    (The Rockefeller Institute of Government)

  • Plamen V Nikolov

    (The Lewin Group)

  • Patricia Billen

    (The Rockefeller Institute of Government)


Social welfare programs strive to improve the well-being of needy and vulnerable populations. The fact that states spend different amounts on these programs is well known, but why they do so is less understood, including the extent to which differences are affected by states’ relative fiscal capacity, defined as their ability to raise revenue through taxation. The federal government has long played an important role in offsetting state fiscal disparities. However, recent changes in federal grant programs might have affected poor and rich states in different ways. For the purpose of this study, we measure fiscal capacity—and thus distinguish between rich and poor states—using states’ real per capita income. By social welfare spending, we mean per capita state spending on programs intended to support lower-income households, usually programs that are means tested. These programs might include cash assistance programs such as Aid to Families with Dependent Children (AFDC) or cash payments under AFDC’s replacement, Temporary Assistance for Needy Families (TANF); health programs such as Medicaid and state child health insurance programs (SCHIP); and a wide variety of non- health service programs providing child care, foster care, low-income energy assistance, and social services to the physically disabled and programs funded by the Social Services Block Grant (SSBG). The Study Conducted over 21 months, the study involved two major activities: Analysis of expenditures across 50 states. Our analysis examined variation in spending patterns across the 50 states and the District of Columbia. Our team analyzed 24 years of data on state and local social welfare spending patterns for four categories of social welfare spending and a residual category of all other state and local spending. These categories encompassed cash assistance; Medicaid; non-health social services, such as child care, child welfare, energy assistance, and services to the aged and disabled; public hospitals; and all other non- social welfare spending. We approached the analysis of spending in three ways: (1) employing descriptive data to analyze trends and patterns, (2) developing and estimating econometric models of state spending to estimate how differences in states’ fiscal capacity affect spending, and (3) using the results from the descriptive and econometric analysis to better understand the spending variations we observed between rich and poor states. Case studies. We collected and analyzed qualitative and quantitative data from six states— Arizona, Louisiana, Mississippi, New Mexico, South Carolina, and West Virginia—selected for their high needs relative to their fiscal capacities. Findings from the econometric analysis were used to compare states on their propensities to spend on certain types of social welfare. Comparisons were drawn between rich states (i.e., states with high fiscal capacity) and poor states (i.e., states with low fiscal capacity) and among the six states selected for case studies. To obtain in-depth information about how state fiscal capacity affects state spending on social programs, we conducted site visits to case study states. Four questions guided our interviews: · How do states with the greatest needs and the least resources make financial decisions regarding their social welfare programs? · How do these states respond to short-term financial challenges, such as the recent state fiscal crises? · Why do some poor states spend more on social welfare programs than other poor states? And why did some spend more on certain programs and less on others?

Suggested Citation

  • Richard Toikka & Thomas Gais & Plamen V Nikolov & Patricia Billen, 2004. "Spending On Social Welfare Programs In Rich And Poor States," Public Economics 0410006, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwppe:0410006
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    Cited by:

    1. Owyang, Michael T. & Zubairy, Sarah, 2013. "Who benefits from increased government spending? A state-level analysis," Regional Science and Urban Economics, Elsevier, vol. 43(3), pages 445-464.

    More about this item


    welfare economics state spending welfare reform expenditures;

    JEL classification:

    • D6 - Microeconomics - - Welfare Economics
    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • H - Public Economics

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