The Effect of Electronic Benefit Transfer on the Marginal Propensity to Consume Food out of SNAP

The Supplemental Nutrition Assistance Program (SNAP) provides food assistance to nearly 44 million Americans each year. I document a substantial increase in the program’s ability to stimulate food consumption from 1990 to 2010, as measured by the marginal propensity to consume food (MPCf) out of SNAP. I provide the first evidence for a mechanism driving this increase: the transition from paper coupons to Electronic Benefit Transfer (EBT) cards. Using plausibly exogenous variation over states and time I estimate that the introduction of EBT doubles the MPCf out of SNAP and accounts for 25 percent of its observed increase. ∗The University of Arizona, Department of Economics, 1130 E Helen St., McClelland Hall Rm 401, Tucson, AZ 85721 (email:eckcs1@email.arizona.edu). I would like to thank Martin Dufwenberg, Price Fishback, Hidehiko Ichimura, Michael Kuhn, Ashley Langer, Jessamyn Schaller, Gary Solon, Tiemen Woutersen, and seminar participants at The University of Arizona for their excellent comments and suggestions. Many of the 43 million Americans living in poverty struggle to consume enough food. For children who grow up in poverty, malnutrition is associated with lower childhood and adult health (Cook et al., 2004). To address this problem, Congress created the Supplemental Nutrition Assistance Program (SNAP; formerly called the food stamp program) in 1964 to help people living at or below the poverty line gain access to a secure source of food. SNAP distributes money that can only be used on eligible food items at qualified retailers. Today, SNAP is the second largest in-kind transfer program in the United States and distributes $66.5 billion in food assistance to 44 million people (USDA, 2017). By providing in-kind, rather than cash, benefits policymakers hope that SNAP recipients will consume more food than they would with an equivalent cash transfer (Currie and Gahvari, 2008). However, there is a long-standing debate over whether in-kind transfers, and SNAP benefits in particular, are better at steering consumption towards certain types of goods. Standard demand theory predicts that inframarginal households—those that would spend more on food than they receive in SNAP benefits—will treat SNAP benefits and cash as perfect substitutes (Southworth, 1945). This result implies that, for the majority of SNAP households, SNAP benefits and cash should lead to similar increases in food consumption. Despite the clear theoretical predictions, the empirical evidence on how much SNAP increases food consumption is mixed. Most studies have focused on estimating the marginal propensity to consume food (MPCf) out of SNAP to measure the effect of SNAP benefits on total food consumption. The MPCf out of SNAP indicates how much food expenditures rise in response to a $1 increase in SNAP benefits. As shown in Figure 1, from the beginning of the program until the early 1990s, the evidence suggests that the MPCf out of SNAP was near . 1, which is in line with most estimates of the MPCf out of cash (Moffitt, 1989; Schanzenbach, 2002; Hoynes and Schanzenbach, 2009). In other words, inframarginal consumers treated a cash transfer and SNAP benefits in the same way. However, a new wave of studies focusing on consumers in the late 2000s and early 2010s finds the opposite result: SNAP induces much more food consumption than an equivalent cash transfer (Collins et al., 2016; Beatty and Tuttle, 2015; Bruich, 2014; Hastings and Shapiro, 2018). Methodological differences between the two sets of studies are insufficient to explain the increase in estimated MPCfs over time. In each sample period researchers have used both experiments (Moffitt, 1989; Schanzenbach, 2002; Collins et al., 2016) and exogenous policy changes (Hoynes and Schanzenbach, 2009; Beatty and Tuttle, 2015; Bruich, 2014; Hastings and Shapiro, 2018) to identify the causal effects of SNAP on food consumption. Moreover, 76 percent of SNAP households are inframarginal in my sample and this proportion is relatively stable over the sample period.