The Impact of Welfare Reform and State Budgets on State-Level Poverty and Inequality Measures

This study investigates the relationship between the implementation of TANF and two measures of well-being, absolute and relative well-being, and how welfare reform altered the vulnerability of these measures of well-being to fluctuations in the business cycle. I find that while TANF significantly improves absolute well-being during periods of low unemployment, it significantly worsens absolute well-being when the unemployment rate is high. In addition, the sensitivity to the unemployment rate increased significantly as a result of TANF, causing more vulnerability to downturns for all three low-income percentiles. The impact of TANF on the relative measure of well-being, ratios of inequality, showed an estimated increase in inequality, indicating a fall in relative well-being. However, these results are not stable or significant across all robustness checks.