Explaining the Food Stamp Cash-Out Puzzle

Abstract

Empirical studies have shown that food stamp participants spend a higher proportion of their benefit on food than they would with an equivalent amount of cash. Our study demonstrates that this result can be explained by the decision making behavior of multi-adult households. Multi-adult households spend a higher proportion of their food stamp benefit than they would with an equivalent amount of cash. In contrast, single-adult households show little difference in food spending between food stamps and an equivalent amount of cash. Because over 30 percent of food stamp participants are in multi-adult households, switching from food stamps to cash may reduce food purchases of these needy households. If that is indeed the case, the use of food stamps and other in-kind benefits may be more desirable than other forms of assistance.