Strategic interaction among the states: An in-depth look at the welfare "race to the bottom"

Abstract

This study analyzed interdependent behaviors among states in setting welfare benefits, behaviors often referred to as strategic interactions. Strategic interactions among states are believed to have led some state governments to to the bottom, o term used to describe state governments' decisions to cut welfare benefits when neighboring states have done the same. The study primarily examined the variations in strategic interactions by using spatial, temporal, and spatial-temporal statistical approaches. Findings suggest that both high and low benefit states pay attention to the generosity of their neighbors. Although more states have exerted pressure on benefit levels, this phenomenon has not abated over time nor has it intensified under welfare reform as anticipated by some economists. The present findings lead to the recommendation that a federal standard is warranted to eliminate some of the problems associated with decreasing benefits for families and children. Key words: block grants; to the bottom; strategic interactions; welfare. benefit levels; welfare migration ********** The field of taxation often cites the view that a local government's policy choices in one locale are the results of the actions of other local governments. In the field of public welfare, views of interdependent behaviors among states, often referred to as strategic interactions, have become more common in recent years (Besley & Case, 1995; Case, Hines, & Rosen, 1993; Figlio, Koplin, & Reid, 1999). These behaviors are believed to have led some state governments to exert downward pressure on welfare benefits for needy families. The term has been used widely to describe competition between states in setting welfare benefits. The term to the has been used to describe state governments' decisions to cut welfare benefits when their neighboring states have done the same (Figlio et al.). Some researchers maintain that under the current block grant structure, the race to the bottom has intensified because states bear the full cost of providing benefit payments to migrants from other states (Brueckner, 2000; Figlio et al., 1999). Along with time-limited welfare and stricter work and eligibility requirements, the enactment of the block grant structure occurred with the passage of the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996 (P.L. 104193). This act eliminated the open-ended federal matching grant as a funding mechanism for the Aid to Families with Dependent Children (AFDC) program, now entitled Temporary Assistance for Needy Families (TANF), commonly known as welfare. Under the block grant system, each state receives a lump sum from the federal government. The size of the grant is independent of the state's contribution during a particular fiscal year. Strategic interactions among states are explanations for states' choices to decrease their benefits in absolute or real terms (Figilio et al., 1999; Saavedra, 1998). Earlier studies failed to examine closely how the race to the bottom varied across individual states. Most important, earlier studies did not examine whether the race had intensified since the implementation of the block grant structure. The present study provides an in-depth look at the extent to which strategic interaction varied across neighboring states and how this interaction changed over years. Spatial, temporal, and spatial-temporal approaches were used for analyses. The article discusses whether the race to the bottom has intensified in recent years under the block grant structure. We closely examined how and the extent to which states and their neighbors changed their welfare benefit levels relative to the national average benefit level. Last, by using a tree-based regression approach, we divided the country into regions where benefit levels are relatively homogeneous within each region yet quite different between the regions. …