Local Government and Old-Age Support in the New Deal
A key question in the design of public assistance to the needy is how allocation of responsibility for funding and decision-making across different levels of government influences the level and type of assistance provided. The New Deal era was a period in which this allocation changed significantly in the United States, as provision of public assistance shifted from local governments to states and the federal government, accompanied by a large increase in government transfer payments. Focusing on assistance to the elderly and using variation in state laws governing the division of funding between local and state governments for the Old Age assistance (OAA) Program, this paper investigates the responsiveness of OAA payments and recipiency to local government funding shares. Payments per elderly resident were significantly lower in states with higher local funding shares, driven largely by reductions in recipiency. The baseline results suggest that had local governments needed to fund half of OAA payments in 1939, on the lower end of local funding shares prior to the New Deal, the share of the elderly receiving OAA would have been 5 percent rather than 22 percent, and perhaps even lower. More speculative results suggest that greater local funding led to lower representation of blacks among OAA recipients relative to their share of the population, particularly in the South.
I thank Price Fishback, Eric Hilt, Lee Lockwood, JohnWallis, Heidi Williams, and seminar participants at Wellesley for helpful comments, and Emily Moss and Jordan Norris for excellent research assistance. I also gratefully acknowledge financial support from National Science Foundation (NSF) Grant Number 1628860. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.
Daniel Fetter, 2017. "Local government and old-age support in the New Deal," Explorations in Economic History, .