It is well-known that real benefits in the major cash transfer program in the U.S. -- the Aid to Families with Dependent Children (AFDC) program -- have fallen drastically over the past twenty years. State legislatures, which set AFDC benefit levels, have failed to increase nominal benefits to keep up with inflation, resulting in a 25 percent decline in real benefits between 1960 and 1984. The most popular explanation for this decline is that state legislatures, reflecting the changing preferences of voters, have grown more conservative in their tastes for redistribution. The evidence presented in this paper is consistent instead with a different explanation, that legislatures have let federally-financed Food Stamps displace state-financed AFDC benefits. A similar displacement of AFDC by Medicaid benefits appears to have occurred. Aside from implying that preferences for redistribution have not in fact changed, the results also show that the total transfer benefit has increased, as should be expected from growing income levels. The findings also imply that neither the Food Stamp program nor, presumably, any other lump-sum transfer provided by Congress is likely to have any effect on the incomes of the poor female-head population. Instead, such programs will merely provide budget relief to the states.
*Published:
National Tax Journal, Vol.43. No.2, pp.123-142, June 1990.
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