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Incentive to Retrench? Institutional Moral Hazard among Federal & State Social Assistance Programs after Welfare Reform

Attachment: 
TitleIncentive to Retrench? Institutional Moral Hazard among Federal & State Social Assistance Programs after Welfare Reform
Publication TypeWorking Paper
AuthorsParolin, Z., & Luigjes C.
PublisherHerman Deleeck Centre for Social Policy
Place PublishedAntwerpen
Year of Publication2018
NumberWP 18/02
Pagination49
Date Published18/01/2018
Abstract

This paper investigates whether interactions of federal- and state-administered social assistance programs in the United States provide state governments a financial incentive to cut back on cash assistance for low-income families. We test two complementary hypotheses: First, that the federally-financed Supplemental Nutrition Assistance Program (SNAP) and Supplemental Security Income (SSI) programs act as insurance mechanisms for retrenchments in cash assistance through the state-administered Temporary Assistance for Needy Families (TANF) program, and second, that the structure of TANF provides states a financial incentive to cut back on cash assistance. Applying a differences-in-differences approach on household income data from 1997 to 2014, we find that the federal government insures states for more than half of their retrenchment in TANF cash assistance: A $50 decline in state spending on cash support leads to an average $27 increase in federal social assistance expenditures. We find that 39 percent of states’ retrenchment in TANF cash assistance is reallocated toward a broad set of expenditures that might otherwise have to be funded through general state revenues. Our findings suggest that state governments have a financial incentive to disinvest in TANF cash assistance and instead shift the burden of social assistance to the federal government.

Keywordsfederalism, Institutional moral hazard, social policy, Supplemental Nutritional Assistance Program, Supplemental Security Income, Temporary Assistance for Needy Families
Citation Key6308
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