Issue: The Food Stamp Program (FSP) is one of the

Federal Government’s primary countercyclical assistance programs, providing assistance to more households during a recession and to fewer households during

an economic expansion. These countercyclical changes

in FSP expenditures can also have beneficial stabilizing

effects on the economy, stimulating economic activity

during a recession and slowing demand during an

expansion. The extent of the program’s economywide

stabilizing effect depends on how the program is

financed. The Budget Enforcement Act of 19901

requires that all Federal programs be funded through

budget-neutral means (balanced budget) except in 

emergencies as determined by Congress. The Food

Stamp Program provides an economic stimulus during 

a recession only if emergency-type2 financing is used.

Determining the ultimate stimulative effect of the Food

Stamp Program on economywide consumption, production, and income requires simultaneous analysis of the

effect of budgeting requirements, government spending,

household spending patterns, labor supply, and the level

and distribution of production. 

Background: During a recession, FSP expenditures

increase as the program expands to provide benefits to

more households. The rise in benefits increases spending

by recipient households, which then stimulates production. Higher production boosts labor demand and household income. Increased household income triggers

additional spending. Ultimately, the initial increase in

food stamp expenditures provides an automatic stimulus

to an economy in recession. However, this result occurs

only if the Government finances the increase in program

expenditures through emergency financing. In a recession

scenario with excess liquidity, excess productive capacity,

and unemployment, government borrowing does not

crowd out private investment. In this case, emergency

financing stimulates economic activity. 

If the same recession-driven increase in FSP benefits is

financed through increased taxes or other budget-neutral

means, the stimulus effect of the increase in expenditures

is dampened or even reversed. If program growth is

financed through an increase in taxes, it redistributes

income primarily from high- and mid-income households,

in the form of taxes, to low-income households, in the

form of food stamps. In this case, the stimulus effect of

increased spending by food stamp recipient households is

muted by reduced spending by taxpaying households. The

net result of the shift in spending from mid- and highincome households to low-income households is an

increase in demand in some sectors and a decrease in

demand in other sectors. This redistribution of demand

occurs for two reasons:

• Households with different income levels spend money

differently. High-income households are more likely

to spend an additional dollar of income on more

expensive goods and services (more expensive automobiles and vacations) than low-income households.

Low-income households are more likely to spend an

additional dollar of income on necessities such as

food and housing. 

• Households spend food stamp benefits differently than

cash. Economic research has shown that low-income

households purchase more food with a dollar of food

stamp benefits than with a dollar of cash income. As a

result, a transfer of income from all taxpaying households to low-income recipient households in the form

of food stamp benefits will likely provide an additional

boost to food spending. 

United States

Department of

Agriculture

Economic 

Research

Service

Effects of Changes in Food Stamp

Expenditures Across the U.S. Economy

Kenneth Hanson and Elise Golan

Food Assistance and Nutrition Research Report Number 26-6 August 2002

IN FOOD ASSISTANCE

1 The major provisions of the Budget Enforcement Act of 1990 expire

at the end of fiscal year 2002. 

2 In this analysis, emergency financing includes the Food Stamp

Program contingency fund. This fund is designed to accommodate

caseload increases during a recession that requires expenditures

greater than budgeted. Expenditures from this fund do not count

against budget neutrality.
Ultimately, whether growth in the Food Stamp Program

stimulates economic activity depends on the specifics of

the funding mechanism and the economic interaction

among households, industry, and government. Analysis of

the net effect of these complex interactions requires the

use of economywide economic models.

Findings: To investigate the effect of a recession-driven

increase in FSP expenditures funded through emergency

borrowing, Economic Research Service (ERS) researchers

hypothetically increased annual Food Stamp Program

expenditures by $5 billion.3 In this scenario, the funds for

program expenditures were borrowed from financial

markets without crowding out private-sector investment.

Though the amount of the hypothetical change was small

compared with total economic production ($17.3 trillion

in 2001) and household income ($8.7 trillion in 2001), it

was close to 32 percent of total program expenditures and

close to 12 percent of total food consumed at home by all

low-income households. This magnitude of change is not

unusual for the Food Stamp Program. For example, food

stamp benefit costs are expected to increase by 22 percent,

from $15.5 billion in FY 2001 to $18.9 billion in FY

2002, in response to rising participation and benefits in

the face of a weak labor market.

The $5 billion rise in food stamp expenditures resulted in a

$1.3 billion increase in spending on food items by recipient

households. By shifting cash income previously spent on

food to nonfood spending, recipient households increased

their spending on nonfood items by $3.7 billion. The

increase in demand for both food and nonfood items stimulated new production and jobs in those industries where the

demand occurred—and in industries supplying inputs to

them. Ultimately, the additional $5 billion of FSP expenditures triggered an increase in total economic activity

(production, sales, and value of shipments) of $9.2 billion

and an increase in jobs of 82,100 (fig. 1). The farm and

food-processing sectors gained 8,800 jobs (growth of about

0.22 percent) while nonfood sectors gained 73,300 jobs

(growth of about 0.06 percent).

To investigate the effect of an increase in recessiondriven FSP expenditures that was funded through budgetneutral tax increases, ERS researchers hypothetically

increased both FSP benefits and personal income taxes

by $5 billion.4 As in the emergency-financing scenario,

the first effect of the increase in FSP expenditures was a

rise in spending by recipient households for both food

and nonfood items. However, in this scenario, the rise in

recipient household spending was countered by a decline

in spending by taxpaying households. Ultimately, once all

the economywide effects were accounted for, the budgetneutral $5 billion increase in food stamp benefits induced

a spending increase by low-income households of $1.357

billion on food and $3.608 billion on nonfood goods and

services. Mid- and high-income households cut food

spending by $159 million and nonfood spending by

$5.491 billion (fig. 2).

As a result of the redistribution of expenditures, total

economic activity declined by almost $1 billion with a

loss of 14,400 jobs, though the farm and food-processing

sectors had production increases and job gains of 7,870

jobs. The nonfarm and nonfood-processing sectors of the

economy declined, losing 22,270 jobs (fig. 3). In aggregate, mid- and high-income households lost 14,000 jobs

and low-income households lost 400 jobs. The primary

reason for the decline in economic activity and the loss of

jobs was that the shift in household spending was toward

goods and services produced by relatively less laborintensive sectors of the economy. As jobs and earnings

were lost, household income and spending fell, which led

to less economic activity.

2 Economic Research Service / USDA

Effects of Changes in Food Stamp Expenditures Across the U.S. Economy / FANRR-26-6

3 For this experiment, researchers used an input-output multiplier

model because it provides a good approximation of an economy with

excess capacity, labor supply, and financial funds. 

4 For this experiment, researchers used a computable general equilibrium

model because it provides a good approximation of an economy where

the funding of Federal Government programs must be budget neutral. 

Total economy Farm and food sectors Other sectors

0

10

20

30

40

50

60

70

80

90

82.1

8.8

73.3

Figure 1—A $5 billion budget-deficit increase in food

stamps leads to job gains in all sectors of the economy

1,000 jobs

Source: ERS calculations from model analyses.
After all of the production changes had worked through

the economy, household income fell by $1 billion.

However, low-income households had income gains of

about 2 percent ($4.965 billion) due to the infusion of

food stamps—though the rise in low-income household

income was slightly less than the additional $5 billion in

food stamps because of a reduction in earnings (fig. 3).

Income for mid- and high-income households fell by 0.1

percent ($5.965 billion)—an amount greater than the

initial increase in taxes because of a reduction in earnings

and a further increase in income taxes (fig. 4). To maintain budget neutrality, income taxes needed to increase by

an additional $134 million to make up for reductions in

other tax revenues such as sales tax revenue. 

Conclusions: Ultimately, whether growth in the Food

Stamp Program stimulates economic activity depends on

the funding mechanism—emergency financing stimulates

economic activity in a recession, while budget-neutral

financing does not. However, in either scenario, the

increase in FSP expenditures raises the budgets of food

stamp recipient households, stabilizing recipients’ food

consumption and their well-being during economic

downturns. Both scenarios also result in increased

demand and production in the agriculture and food

sectors, stabilizing economic activities in these key rural

sectors during downturns in the economy. 

Effects of Changes in Food Stamp Expenditures Across the U.S. Economy / FANRR-26-6

Economic Research Service / USDA 3

Figure 4—A $5 billion budget-neutral increase in food

stamps raises income for low-income households, but

not by the full benefit amount

$ million

Source: ERS calculations from model analyses.

Low-income households

Mid- and high-income 

households

-8,000

-6,000

-4,000

-2,000

0

2,000

4,000

6,000

4,965

-5,965

Figure 2—A $5 billion budget-neutral increase in food

stamps shifts spending from mid- and high-income

households to low-income households

$ millon

Source: ERS calculations from model analyses.

Low-income households

Mid- and high-income 

households

-6,000

-4,000

-2,000

0

2,000

4,000

6,000

1,357

3,680

-159

-5,491

Food

Nonfood

Figure 3—A $5 billion budget-neutral increase in food

stamps leads to job gains in farm and food sectors 

and losses in other sectors

Number of jobs

Source: ERS calculations from model analyses.

Farm and food

Nonfood

-25,000

-20,000

-15,000

-10,000

-5,000

0

5,000

10,000

-14,400

7,870

-22,270

Total
Effects of Changes in Food Stamp Expenditures Across the U.S. Economy / FANRR-26-6

Information Sources:

Gundersen, Craig, Michael LeBlanc, and Betsey Kuhn.

The Changing Food Assistance Landscape: the Food

Stamp Program in a Post-Welfare Reform Environment.

AER-773. U.S. Department of Agriculture, Economic

Research Service, March 1999.

http://www.ers.usda.gov/publications/aer773

Hanson, Kenneth, Elise Golan, Stephen Vogel, and

Jennifer Olmsted. Tracing the Impacts of Food Assistance

Programs on Agriculture and Consumers: A CGE Model.

FANRR-18 (electronic only). U.S. Department of

Agriculture, Economic Research Service, May 2002.

http://www.ers.usda.gov/publications/fanrr18

Kuhn, Betsey A., Pamela Allen Dunn, David Smallwood,

Kenneth Hanson, Jim Blaylock, and Stephen Vogel.

“Policy Watch: The Food Stamp Program and Welfare

Reform,” Journal of Economic Perspectives, 10(2):189-98,

Spring 1996.

Smallwood, David M., Betsey Kuhn, Kenneth Hanson,

Stephen Vogel, and James R. Blaylock. “Economic

Effects of Refocusing National Food-Assistance Efforts,”

FoodReview 18(1):2-12, January 1995.

For more on the Food Stamp Program:

http://www.ers.usda.gov//briefing/foodnutritionassistance/

foodstamps

http://www.fns.usda.gov/fsp

4 Economic Research Service / USDA

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