Panel Paper: The Consumption Effects of SNAP

Thursday, November 7, 2013 : 3:20 PM
DuPont (Westin Georgetown)

*Names in bold indicate Presenter

Diane Schanzenbach, Northwestern University and Hillary Hoynes, University of California, Davis
One of the political selling points of SNAP is that the benefit payments are thought to raise the consumption of food by more than an equivalent cash payment would. In this paper we will describe the theory and evidence about the relationship between SNAP and consumption. In addition, it will present new evidence on spending patterns over time among SNAP recipients.

Canonical economic theory taught to every introductory economics student predicts that in-kind transfers like SNAP are treated as if they are cash as long as their value is no larger than the amount that a consumer would spend on the good if she had the same total income in cash. For example, imagine a family that earns $2000 per month spends $500 per month on food becomes eligible for $300 per month in SNAP benefits. They will likely now spend more than $500 per month on food because they have more total resources (i.e., $2000 cash + $300 benefits = $2300 total). But they are not likely to spend $800 on food now, either. Instead they will reduce some of their out-of-pocket food spending and redirect that cash toward other things like housing or transportation.

There are two important exceptions to the SNAP-as-cash model, though. The first is for families that spend less on food per month than their food stamps are worth. For these families, SNAP will increase food spending by more than an equivalent cash transfer would. The second comes from behavioral economics and predicts that SNAP may not be equivalent to cash if households use a mental accounting framework that puts the benefits in a separate “category”.

After explaining the framework for thinking about the impact of SNAP on consumption, we will review the academic evidence on the matter. Many papers have found that SNAP recipients consume more food out of SNAP than they would with an equivalent cash transfer. More recent work, however, has found evidence that is more consistent with the canonical economics model.

What is missing from the literature, though, is a careful description of the overall spending patterns of SNAP recipients and how those have evolved over time. To fill this void, we will analyze a time series of microdata from the Consumer Expenditure Survey, the most comprehensive source of information on spending in the United States. We will document trends in spending on food, housing and other necessities among SNAP recipients and compare these both to the program’s assumed needs standards and to other groups of low-income non-participants. We conclude by discussing the role of SNAP as a consumption stabilizer during recessions.