Leading up to the passage of the 1996 welfare reform, there was much speculation and
debate over the possibility that states would \race to the bottom” in setting welfare
generosity if given more control over their individual programs. In the fteen years
after welfare reform, did such a race to the bottom ensue? Using a spatial dynamic
econometric approach I investigate welfare competition across multiple policy instru-
ments and across three distinct welfare periods { the AFDC regime, the experimental
waiver period leading up to the reform, and the TANF era. Results suggest strategic
policy setting occurs over multiple dimensions of welfare including the e ective bene-
t level and the e ective tax rate applied to recipient’s earned income. Furthermore,
strategic behavior appears to have increased over time consistent with a race to the
bottom after welfare reform. However, once controlling for own past policies, little
evidence of cross-state strategic policy setting is found for the maximum bene t level.