Regression analysis was used to test the hypothesis that welfare generosity and incarceration rates were negatively related. Because the focus was on State-level policy effects, the dependent variable in the analysis was the State prison incarceration rate. The key independent variable of welfare generosity included measures of State spending on Aid to Families With Dependent Children, Supplemental Security Income, unemployment insurance, non-tertiary education spending, food stamps, and Medicaid. To assess the impact of economic and demographic factors on imprisonment, the analysis also included State gross product, unemployment and poverty rates, and size of the urban population. Results showed the negative relationship between welfare and incarceration grew over time, suggesting the emergence of a novel kind of penal-welfare regime in the late 1980's and 1990's. The effects of both welfare and the size of the black population became quite significant in the 1990's. Declining support for social welfare was part of the development of a punitive policy in which the State had a substantial and active role. In the wake of the Reagan administration, penal and welfare institutions came to form a single policy regime aimed at the governance of social marginality. 59 references, 5 notes, and 4 tables