A Theoretical and Empirical Evaluation of the Functional Forms Used to Estimate the Food Expenditure Equation of Food Stamp Recipients

The food expenditure equation of food stamp recipients is obtained as a generalization of Roy's identity. This equation rationalizes a larger marginal propensity to spend on food out of food stamps than out of income, and is an alternative to the traditional Southworth formulation. The only previously estimated functional form found to be flexible is due to Senauer and Young. Estimates of this specification using data from the San Diego Cash-Out Demonstration illustrates that flexibility is important. An example of welfare reform demonstrates that substantial errors can occur if flexibility is ignored.