Exhibit III-10 displays the regression results for the five regressions with dependent variables defined as respective categories of per capita state and local spending (CA - cash assistance, M - Medicaid, NSS - non-health social services, PH - public hospitals, and non-social welfare - NW) for all states.21 Below the estimated coefficients, t-statistics appear in parentheses. A t-value greater than approximately 1.96 indicates statistical significance at the .05 level, and a t-value greater than approximately 2.44 indicates statistical significance at the .01 level.
|Per capita personal income||-0.0039**
|Federal grants for non-social welfare||0.0049
|Federal grants for social welfare||0.0943**
|Unemployment per capita||836.09**
|Poverty per capita (moving average)||-30.10
|CA means Cash Assistance, M means Medicaid, NSS means Non-health Social Services, PH means Public Hospital Spending, and NSWS means Non-Social Welfare Spending.
T-statistics are in parentheses.
** Significant at the 1% level.
* Significant at the 5% level.
As shown in Exhibit III-10, the linear effects of per capita personal income on per capita social welfare spending after we control for federal grants and need are positive, and statistically significant for Medicaid and non-health social services. However, the effects are negative and statistically significant for cash assistance and statistically insignificant for public hospital spending.22 The impact of per capita personal income on per capita non-social welfare spending is larger, but we expected this outcome because non-social welfare spending is much larger than the individual components of social welfare spending.23
When we examine the effects of federal grants on the components of social welfare spending for all states in Exhibit III-10, we find, unsurprisingly, that grants for non-social welfare exert weak and statistically insignificant effects on cash assistance and Medicaid spending, but such grants exert much stronger and statistically significant effects on non-health social services and public hospital spending. This result might constitute evidence of a positive income effect of non-social welfare grants24 on the latter two categories of non-health social services and hospital spending. The federal grants for social welfare have strong, positive, and generally statistically significant effects on spending for cash assistance, Medicaid, and public hospitals. The effect of federal grants on Medicaid is particularly strong, indicating the attractiveness to the states in matching federal Medicaid dollars.
Exhibit III-10 also shows the results for the three main indicators of need for social welfare spending (i.e., poverty per capita, unemployment per capita, and population density) for all states. The negative signs on the poverty variable seem surprising and difficult to explain. Possibly the measures of fiscal capacity and federal grants are insufficient to capture the state's perceived resources and poverty proxies for available resources (in a negative direction). Also, high poverty states might resist spending because of an omitted unobserved variable correlated with poverty. The poverty variable was statistically significant and negative only for Medicaid and public hospital spending.
Unemployment per capita had the expected positive sign for all categories of social welfare spending except non-health social services, and the effect was statistically significant for cash assistance, Medicaid, and public hospitals. Population density was statistically significant for all categories of social welfare spending, including public hospitals, but was positive for cash assistance and negative for Medicaid, non-health social services, and public hospitals.
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