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

Laura S. Connolly
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Laura S. Connolly: Oregon State University

Public Finance Review, 1999, vol. 27, issue 4, 396-417

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.

Date: 1999
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Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:27:y:1999:i:4:p:396-417

DOI: 10.1177/109114219902700403

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