Welfare Reform, Disability, and Federalism: The Economics of Government Assistance Programs in the United States

This dissertation explores how the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) changed incentives for lawmakers and individuals. The 1996 welfare reform delegated primary rule-making authority over welfare to state governments and changed the way the United States funds welfare programs. The passage of this reform provides an opportunity to examine the role of federalism in government assistance programs. I explore several questions related to the 1996 reform in three studies. In the first study, I examine the effects of state-level welfare policy on disability acceptance rates. The 1996 reform transitioned welfare funding from a matching grant to a block grant, increasing the incentive for states to restrict welfare caseloads by increasing the opportunity cost of welfare funds. Disability programs offer an attractive alternative for states to reduce the number of welfare recipients because disability is federally funded. While disability policy is set at the federal level, cases are reviewed by state-run offices. A state seeking to shift individuals off of welfare and onto disability can restrict access to welfare while exerting institutional pressure on disability offices to admit more applicants. Using state-level data, I investigate the degree to which states affect the substitution of disability for welfare assistance. I find that, on average, the presence of welfare time-limit policies increases a state\u27s disability acceptance rates by 1.77 percentage points, from approximately 36 percent to 38 percent for the average state in my sample. In the second study, I examine the role of the expectations in congressional decisions to delegate power to the states. I use measures of the restrictiveness of state welfare rules as a proxy for the expectations of members of the House. I find evidence that Democratic members of the House from more conservative districts were more likely to vote for welfare reform. Additionally, I find that for more conservative members of the House, reasons to expect that their state would become more restrictive on welfare policy increased the probability that they would vote for welfare reform. In the final study, I test whether welfare funding exhibits political spending cycles. Using state-level data from the post-reform period, I examine welfare spending at three levels of detail. I find that states with Democratic governors running for reelection have higher welfare spending, broadly measured. However, when analyzed with more detailed welfare financial data, this effect is no longer statistically different from zero. Overall, I find little evidence of political welfare spending cycles. These studies contribute to our understanding of delegation within a federalist system of government. Delegating authority to states will lead to more heterogeneous laws, as states change their policies to better reflect constituent preferences and changing incentives. Rational legislators will take these changes into account when making their decision to delegate authority. These changes do not occur in a vacuum but interact with existing state and federal programs, which is particularly important if states have some de facto control over federal programs