The Habit-Forming Effect of Subsidies: Evidence from WIC

Although existing research suggests that transfer payments with vouchers that apply to a broad class of items are effectively equivalent to a cash transfer, less is known about the influence of highly targeted vouchers.  This paper examines the possibility that antipoverty programs that provide highly targeted vouchers for a sustained period could persistently influence behavior after the program ends through the formation of habits.  We do this in the context of the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), a part of the non-traditional safety net, which provides recipients a set of vouchers for specific food items. Specifically, we estimate whether the changes in household purchasing patterns that occur during WIC program participation persist after eligibility ends.

The objective of WIC is to supplement nutrient intake for low-income pregnant and postpartum women and young children.  The packages of foods subsidized for WIC participants remained largely unchanged between 1972 and 2009 until they were revised to be consistent with the Dietary Guidelines for Americans. The revisions included a lower quantity of juice, milk, and eggs; the requirement that milk be 2% fat or less for most participants; and the addition of whole-grain bread and produce to the package.  Our analysis focuses on the specific products and quantities that are included in the WIC packages and the changes in the included products that occurred in 2009.

To examine habit formation through WIC vouchers, we use detailed scanner data from the Nielsen Consumer Panel.  First, we examine changes in purchasing patterns when households gain and lose age eligibility.  Second, we estimate whether changes in the items included in the WIC packages in 2009 affected purchasing patterns for households receiving WIC.  Third, we estimate whether the amount of time that WIC-participating households are exposed to the specific items in the new package vouchers affects their purchases of these items after these households are no longer eligible, based on the age of the youngest child, and exit the WIC program. Preliminary results indicate that the WIC package revision increased purchases of whole wheat bread, and reduced purchases of fruit juice and eggs.  Our estimates of the effect of WIC after participation has ended are suggestive of a persistent impact on purchases of wheat bread and produce, consistent with habit formation.  Overall, this paper provides the first estimates of habit formation resulting from antipoverty programs and provides information about whether there are any persistent benefits from a more targeted voucher program like WIC after the participation ends.