State Dependence in Welfare Benefits in a Non‐Welfare Context

Abstract

This study investigates state dependence in social assistance benefits in Turkey, where benefit receipt and persistence rates have significantly increased over the past decade. We estimate state dependence through dynamic random‐effects probit models, controlling for observed and unobserved heterogeneity, and endogenous initial conditions. In particular, we employ Wooldridge’s estimator to achieve consistent and correct estimates of state dependence and compare the results with estimates from Heckman’s reduced‐form approach as a sensitivity check. Both estimators enable us to disentangle true state dependence from its spurious components and address the potential bias due to the short panel length. Our results suggest that the receipt of benefits in the last year increases the likelihood of benefit receipt in the current year, namely the structural state dependence, by 17.2–19.5 percentage points.