Income Volatility and Household Consumption.

The impact of food assistance programs (food stamps) in a period of rising income inequality in the United States is analyzed using 1978-92 PSID data. We assess to what extent food assistance can be viewed as an effective insurance to permanent shocks to income. The results show that the program has a substantial consumption-smoothing effect in the low income population: The response of food consumption to a permanent income shock is a third lower after accounting for the monetary value of food stamps. [ABSTRACT FROM AUTHOR]