Macroeconomic conditions, institutional factors and demographic structure: What causes welfare caseloads?

Some of the possible determinants of changes observed in welfare caseloads are analysed in this study. The paper attempts to explain variations in welfare caseloads on the basis of four different factors: macroeconomic conditions, interactions with other income maintenance programmes, changes in the programme's parameters and changes in the demographic structure. Different models are tested by applying time series techniques. The data employed are of an administrative nature and cover the whole period that the Madrid programme has been in operation. The results show that the effects of both unemployment and institutional variables are strong and significant. Macroeconomic effects on caseloads could be offset or reinforced by changes in unemployment protection and reforms of the programme's parameters. The significant effects found for the share of lone-parent applicants also show that demographic shifts could shape the trends of welfare rolls regardless of the changes in unemployment or the implementation of institutional reforms. The authors would like to thank Juan Gabriel Rodríguez, Minoru Kunizaki, Miguel Angel Malo and three anonymous referees for their comments and suggestions. Financial and technical support from the Spanish Institute for Fiscal Studies, the Inter-ministerial Commission on Science and Technology (SEC 2001-0746) and the Social Services Department of the Madrid Government is also gratefully acknowledged. Responsible editor: Christian Dustmann.