Are People Ashamed of Paying with Food Stamps

Abstract

Levedahl (1995) claims that marginal 'welfare stigma' causes a dollar of food to provide less utility if bought with food stamps rather than cash, and that this explains why, in the United States, the marginal propensity to consume food out of food stamps is larger than that out of income. This hypothesis has been advanced to explain the so-called 'cash-out puzzle': the empirical observation that the marginal propensity to consume food out of food stamps is much higher than that out of income, even for households who spend some cash income on food. We question the claim that stigma explains the cash-out puzzle. We develop a theoretical model to show that marginal welfare stigma is not sufficient to generate the puzzle, and use it to identify the restrictions imposed by the hypothesis that the puzzle is indeed caused by such stigma. Estimates from Engel curves using parametric and nonparametric methods are shown to be inconsistent with the stigma hypothesis.