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Food Stamp Benefits Provide Fiscal Stimulus

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.

This article is drawn from...

Tracing the Impacts of Food Assistance Programs on Agriculture and Consumers: A Computable General Equilibrium Model, by Kenneth Hanson, Elise Golan, Stephen Vogel, and Jennifer Olmsted, USDA, Economic Research Service, May 2002