Food Stamp Caseloads over the Business Cycle

Abstract

We use a dynamic model of food stamp caseloads with state‐level panel data to estimate the impact of the business cycle on food stamp caseloads in the era of welfare reform. The macroeconomy has a substantial impact on food stamp caseloads: A one‐percentage‐point increase in the unemployment rate leads to a 2.3% increase after one year. In terms of welfare policy, a 10‐percentage‐point increase in the share of a state's population waived from rules limiting food stamp receipt among able‐bodied adults without dependents (ABAWDs) results in a 0.5% increase in contemporaneous caseloads. States with waivers from the Aid to Families with Dependent Children (AFDC) program in the mid‐1990s had caseloads about 1.9% higher than nonwaiver states. While changes in AFDC caseloads have historically resulted in coincident changes in food stamp caseloads, our results suggest that the link between AFDC caseload and food stamp caseload changes has dissipated substantially after welfare reform. The cyclical sensitivity of food stamp caseloads indicates the importance of food stamps in smoothing consumption during economic recessions.