question archive The federal government subsidizes state spending on welfare, thus changing the effective price to states of welfare spending
The federal government subsidizes state spending on welfare, thus changing the effective price to states of welfare spending
Subject:EconomicsPrice:2.88 Bought3
The federal government subsidizes state spending on welfare, thus changing the effective price to states of welfare spending. According to Baicker (2005), the elasticity of state spending, on benefits per recipient, is 0.38. Suppose that the federal government matches state welfare spending, on a one-for-one basis, and then changes to a two-for-one basis. How would you expect state welfare spending to change?
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The elasticity of spending on benefits per recipient indicates is 0.38. This implies that for one percent change in benefits per recipient, there is a 0.38% change in state spending. If the federal government changes welfare spending match from a one-to-one basis to a two-to-one basis, there is a 50% percent increase in benefit per recipient. Given an elasticity of 0.38, the increase in state spending = 0.38 * 50% = 19%.
