Welfare Magnets: The Race for the Top

Strong arguments may be made for the devolution of welfare responsibilities to the states. Given state misincentives, however, the federal government might reasonably prescribe spending ceilings, to prevent state overspending on welfare. Arguments for federally-prescribed minimum payouts are less persuasive. The most promising such argument claims that, absent a federal floor, states will cut benefits in a race to the bottom to prevent becoming a magnet for welfare-seeking migrants. This article's econometric study of the determinants of AFDC payouts finds no evidence that states react in this way. In any event, such problems might less intrusively be addressed through two-tier residency requirements.