Local government and old-age support in the New Deal

Abstract

A key question in the design of public assistance to the needy is how allocation of responsibility for funding and decision-making across different levels of government influences the level and type of assistance provided. The New Deal era was a period in which this allocation changed significantly in the United States, as provision of public assistance shifted from local governments to states and the federal government, accompanied by a large increase in government transfer payments. Focusing on assistance to the elderly and using variation in state laws governing the division of funding between local and state governments for the Old Age assistance (OAA) Program, this paper investigates the responsiveness of OAA payments and recipiency to local government funding shares. Payments per elderly resident were significantly lower in states with higher local funding shares, driven largely by reductions in recipiency. The baseline results suggest that had local governments needed to fund half of OAA payments in 1939, on the lower end of local funding shares prior to the New Deal, the share of the elderly receiving OAA would have been 5 percent rather than 22 percent, and perhaps even lower. More speculative results suggest that greater local funding led to lower representation of blacks among OAA recipients relative to their share of the population, particularly in the South.

Quantifying the mortality impact of the 1935 old-age assistance

“…This is followed by a difference-in-differences analysis to show that states that passed more generous OAA laws after 1935 had greater declines in old-age mortality (Section 3.2) and panel data with fixed effects between 1935 and 1944 that allowed us to look at thin age and race groups and observed payments per recipient along with recipiency rates (Section 3.3). Finally, to control for local shocks and potential endogeneity in OAA policy (i.e., differences in policy correlated with other unobserved population characteristics), in a spirit similar to Fetter (2017) and Galofré-Vilà (2020), in a cross-sectional setting for 1937 and 1939, we exploit county policy comparisons across state borders (Section 3.4). 9 6 A fundamental feature of the OAA was the shift away from local provision of transfer payments to state and federal provision.…”

“…9 6 A fundamental feature of the OAA was the shift away from local provision of transfer payments to state and federal provision. Fetter (2017) calculated that the federal intervention increased recipiency rate by around 20 percent. 7 For instance, some components of the New Deal, such as the Agricultural Adjustment Administration, were perceived as potentially discriminatory on race grounds (Lieberman, 1998;Fishback et al, 2001;Katznelson, 2013).…”

“…The OAA was a means-tested program; it was funded from federal and state revenues collected from matching employer and employee contributions and was administered by states, with some involvement of the local governments (Lansdale et al, 1939;Costa, 1998Costa, , 1999Fetter, 2017;Fishback, 2017;Eichengreen, 2018;Fetter and Lockwood, 2018;Fishback, 2020). The federal government offered the matching grant opportunity to all states and set some baseline requirements.…”

“…The federal government matched state spending up to a maximum amount per person. In order to receive federal matching funds, a state had to involve some state financial participation and had to be administered, or at least overseen, by a state-level agency (Lansdale et al, 1939;Fetter, 2017;Fishback, 2020). Usually, the federal funding share was about 30-50 percent, with the rest funded by states and local government units.…”

Federalizing benefits: The introduction of Supplemental Security Income and the size of the safety net

“…Other work focuses on watershed periods like the New Deal (Fishback, Haines, and Kantor 2007) or the War on Poverty (Bailey and Duquette 2014). Recent research exploits unique datasets from a point in time such as Mother's Pension case records (Aizer et al 2014) or that of the full-count 1940 census (Fetter 2017, Fetter andLockwood 2016). 7 Starting in October 1950, states could claim federal reimbursement for medical payments made directly to providers (known as "vendor payments") on behalf of welfare recipients.…”