Endogenous Government Policy and Welfare Caseloads

Abstract

Governments can soften the impact of the business cycles on welfare caseloads introducing changes in benefit levels or in the proportion of claimants that enter in the program. This paper is motivated by this concern and takes as its starting point both the intensive literature on the determinants of welfare caseloads and the fundamentals of public choice theory applied to the design of welfare programs. The paper is based on data from the minimum income program of Catalonia’s Government (PIRMI). We use time-series analysis to find that unemployment has strong and significant lagged effects on the caseload. Second, the generosity of the program is clearly predictive of receipt of benefit even in a context of high and growing unemployment rates. We also found, however, a fairly strong correlation between unemployment growth and the proportion of rejected applications. This later parameter might have been the chosen tool to moderate the increase in the number of recipients.