Fiscal Federalism and Welfare Policy: The Role of States in the Growth of Child SSI

The liberalization of the Supplemental Security Income (SSI) program in 1990 allowed many children receiving assistance from AFDC to enroll in SSI instead. Because of differences in the federal funding rules for these two programs, many state governments saved money by steering children from AFDC to SSI. I calculate this financial gain to states and present evidence that state fiscal considerations influenced the movement of children between welfare programs; states experiencing negative fiscal shocks were more likely to encourage these moves. These findings are important for predicting state responses to future adverse fiscal shocks in this post-welfare reform era.