Spending on Social Welfare Programs in Rich and Poor States. Final Report.. 1. Overview of Analysis

07/01/2004

Our analysis of Census spending data involved both examining time trends and patterns across states and estimating an econometric model. The analysis of trends and patterns entailed primarily the study of time trends and cross-state patterns for different components of spending. We developed the econometric model to give insight into the determinants of state and local spending on social welfare and to provide useful input for the analysis of spending decisions between rich and poor states in general and in the six poor states we visited. As explained below, the model specification is based on a linear expenditure function derived from a behavioral theory of state and local spending decisions subject to a budget constraint. The model attempts to identify causal factors that explain variation in spending patterns. The explanatory factors include state fiscal capacity, federal grant amounts, indicators of need for social welfare programs (e.g., poverty and unemployment), time effects (e.g., dummy variables for year), and state effects (e.g., dummy variables for state). We did not intend the model to capture all factors responsible for variation in spending. Indeed, to help us understand variation in spending across states, we relied on measures of "state effects," which are effects associated with particular states after controlling for the effects of included explanatory variables.

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