Does welfare reduce poverty?

The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 made fundamental changes in the federal system of public assistance in the United States, and specifically limited the eligibility of immigrant households to receive many types of aid. Many states chose to protect their immigrant populations from the presumed adverse effects of welfare reform by offering state-funded assistance to these groups. I exploit these changes in eligibility rules to examine the link between welfare and poverty rates in the immigrant population. My empirical analysis documents that the welfare cutbacks did not increase poverty rates. The immigrant families most affected by welfare reform responded by substantially increasing their labor supply, thereby raising their family income and slightly lowering their poverty rate. In the targeted immigrant population, therefore, welfare does not reduce poverty; it may actually increase it.