Tightening a Welfare System: The Effects of Benefit Denial on Future Welfare Receipt

Abstract

We derive Local Average Treatment Effect estimates of the impact of welfare benefit denial on future receipt using a unique experiment involving reassessment of some applicants who were originally slated to receive benefits. We find evidence of considerable heterogeneity among applicants. Our results support a model with a peripheral group who exhibit scarring effects from being granted benefits and a core group who do not. The core group moves quickly back onto welfare when they are denied benefits. Even for the peripheral group, benefit denial has intermediate term but not permanent impacts.

Keywords: welfare, state dependence, local average treatment effect

JEL Classification: I38