Consumption Responses to In-Kind Transfers: Evidence from the Introduction of the Food Stamp Program

P roviding assistance to the poor through in-kind transfers, such as vouchers for food and housing, garners more political support than providing assistance in cash. Supporters of such policies believe that providing voucher payments for certain goods (such as groceries) will cause recipients to purchase more of the goods being subsidized, and that recipients will not be able to use public assistance to buy other, less socially desirable goods (such as alcohol or cigarettes). According to canonical economic theory, providing a transfer in-kind should lead to the same outcome as a similar-sized cash transfer as long as program participants are inframarginal. As a result, depending on consumer preferences, the provision of in-kind transfers (relative to cash) may have little to no impact on purchases of the actual goods being subsidized. Despite strong theoretical predictions about consumer behavior, little empirical evidence has been brought to bear on the impact of providing in-kind transfers on