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Cyclicality of the U.S. Safety Net: Evidence from the 2000s and Implications for the COVID-19 Crisis

Marianne P. Bitler, Hilary W. Hoynes, and John Iselin

Abstract:

In this paper, we explore the cyclicality of the U.S. safety net over the 2000s through the economic peak in February 2020 before the onset of the COVID-19 crisis. We compare the effects of means-tested programs with those of social insurance programs, separately and combined. We find, on a per capita basis, Unemployment Insurance (UI) is by far the most cyclical, particularly when fully funded federal extensions are included. A 1-percentage-point increase in the unemployment rate leads to a 17 percent increase in monthly real UI spending. Overall, the social insurance programs provide an additional $31 (2019$) in per capita real spending for each percentage point increase in the annual unemployment rate, while the means-tested programs provide a statistically insignificant $8.50 per capita for each percentage point increase in unemployment. The means-tested programs without SSI provide a significant $12 for each percentage point increase in the unemployment rate. Thus, the parts of the means-tested safety net that can respond quickly are also providing modest countercyclical stabilization. We conclude by speculating what this means for the current response to COVID-19.

Citation

Marianne P. Bitler, Hilary W. Hoynes, and John Iselin (2020), Cyclicality of the U.S. Safety Net: Evidence from the 2000s and Implications for the COVID-19 Crisis , National Tax Journal, 73:3, pp. 759-780

DOI: dx.doi.org/10.17310/ntj.2020.3.06