Author: Neil Bania

Publisher:

Published: 2007

Total Pages: 40

ISBN-13:

In this paper we investigate changes in monthly income volatility in low-income households in the United States since the early 1990s, as well as the relationship between that volatility and food insufficiency. Drawing on data from the Survey of Income and Program Participation (SIPP), we examine whether negative income shocks increase the chances that a household experiences food insufficiency. We find that monthly income volatility is highest for lower income households, and that it increased substantially between 1992 and 2003. Moreover, the greatest increases in income volatility occurred in households with incomes below the poverty line, and this increase appears to have its roots in the shift of household income away from relatively stable public assistance (AFDC/TANF) benefits and towards earnings. We show that volatility is smoothed considerably by the receipt of food assistance benefits (food stamps and/or WIC) and the receipt of these benefits narrows the income volatility gap between lower- and relatively higher-income households. Nevertheless, the consideration of food assistance benefits does not eliminate the large increases in income volatility observed over the time period. In a logistic regression model, we find that both the level of income and income volatility affect the predicted probability of food insufficiency. The results are consistent with theoretical models in which households face either liquidity constraints or binding constraints in spending associated with contractual nonfood expenditures. Finally, we find some evidence to suggest that the probability that higher income households suffer food insufficiency is not related to income volatility, which is consistent with these households not facing liquidity constraints.