Accounting for the decline in AFDC caseloads - Welfare reform or the economy?

We use state-level monthly panel data to assess the relative contributions of the macroeconomy and welfare reform in accounting for the 1993-96 declin e in Aid to Families with Dependent Children (AFDC) caseloads. Our results suggest that the decline in per capita AFDC caseloads is attributable large ly to the economic conditions in states and not to waivers from federal wel fare policies. Nationwide, we attribute 66 percent of the decline to the ma croeconomy. However we do find substantial heterogene ity in the impact and timing of alternative waivers on AFDC caseloads. States with waivers impac ting parental responsibilities experienced greater caseload declines than s tates with waivers that made work more attractive. Overall, our model predi cts that had it not been for the influence of economic factors, welfare ref orm would not have led to any decrease in aggregate caseloads.