Food Stamp Benefits Provide Fiscal Stimulus
Kenneth
Hanson
The Food Stamp Program is one of the Federal
Government’s countercyclical assistance programs—expanding
bene-fits during an economic downturn and decreasing
benefits during an economic expansion. In fiscal
year (FY) 2007, USDA provided $30.4 billion in food
stamp benefits to needy Americans. During a downturn,
the program is an automatic fiscal stimulus, without
congressional action, by providing benefits to new
participants. For example, food stamp benefits increased
by about $6 billion (in 2007 dollars) between FY
2000 and FY 2003, as participation rose during the
recession of 2001.
An increase in food stamp benefits
was considered in early 2008 as part of a fiscal
stimulus package in response to a potential economic
downturn. In these proposals, food stamp benefits
to recipients would be temporarily increased beyond
current levels. Increasing benefits would provide
an immediate stimulus because food stamp recipients
are likely to spend the additional benefits quickly
and fully. While the program benefits are used for
food purchases, this frees some income that was
being spent on food to be spent on nonfood items.
The increased benefits stimulate
the economy through a succession of effects. The
rise in food stamp benefits increases spending by
recipient households, which in turn stimulates production.
Higher production boosts demand for workers and/or
hours worked and income of households throughout
the economy. Increased household income triggers
additional spending. Totaling the succession of
effects, higher food stamp benefits can increase
overall production and income by more than the initial
expenditure—a “multiplier” effect.
ERS investigated the economic
effects of a temporary increase in the monthly maximum
food stamp benefit allotment (currently $542 per
month for a household of four). Using a microsimulation
model developed by USDA’s Food and Nutrition
Service, ERS researchers estimated the increase
in food stamp benefits, and then used these estimates
in an ERS input-output multiplier model to estimate
the additional economic activity stimulated by the
increase in benefits. The analysis assumed that
the number of households participating in the program
did not change and that the monthly maximum allotment
was increased for 12 months. If the increase is
for fewer months, the indirect multiplier effects
may not fully occur.
If the maximum allotment amount
were increased by 10 percent for 1 year, annual
food stamp benefits would rise by $3.94 billion,
resulting in a direct increase in total spending
of the same amount. After the sequence of multiplier
effects is completed, total economic activity would
increase an estimated $7.25 billion. A 20-percent
increase in the maximum allotment would increase
food stamp benefits by $7.9 billion, and total economic
activity by $14.5 billion.
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