The food stamp program, welfare reform, and the aggregate economy

Two results from the food stamp participatioin rate equation are of particular interest. First, inflation, relative to unemployment, is more important for food stamps than the poverty rate. One possible explanation is that as the real value of AFDC payments declined during the 1980s, when states did not adjust nominal benefits for inflation, there was an increase in demand for food stamps. Second, the post-1990 dummy variable is only positive and significant for food stamps. After 1990, there appears to be a change in food stamp participation rates not refected in the poverty rate. We use these estimated parameters to examine the impact of an economic downturn on food stamp expenditures. We project food stamp participation rates and the povert rates under the CBO's macroeconomic forecasts and under a less sanguine alternative, a mild recession beginning in 1997, similar to the experience of the early 1990s.