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Is there a "Race-to-the-Bottom" in the Setting of Welfare Benefit Levels? Evidence from a Policy Intervention

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Author Info

  • Dahlberg, Matz

    ()
    (Department of Economics)

  • Edmark, Karin

    ()
    (Department of Economics)

Abstract

In this paper we investigate whether local governments react on the welfare benefit levels in neighboring jurisdictions when setting their own benefit levels. We solve the simultaneity problem arising from the welfare game by utilizing a policy intervention; more specifically, we use a centrally geared exogenous placement of a highly welfare prone group (refugees) among Swedish municipalities as an instrument. The IV estimates indicate that there exists a "race-to-the-bottom" and that the effect is economically as well as statistically significant; if the neighboring municipalities decrease their welfare benefit level with 100 SEK, a municipality decreases its benefit level with approximately 59 SEK. This result is robust to several alternative model specifications.

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Bibliographic Info

Paper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 2004:19.

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Length: 34 pages
Date of creation: 24 Nov 2004
Date of revision:
Publication status: Published as Dahlberg, Matz and Karin Edmark, 'Is there a "Race-to-the-Bottom" in the Setting of Welfare Benefit Levels? Evidence from a Policy Intervention' in Journal of Public Economics, 2008, pages 1193-1209.
Handle: RePEc:hhs:uunewp:2004_019

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Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
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Web page: http://www.nek.uu.se/
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Related research

Keywords: Welfare benefit level; Strategic interactions; Race-to-the-bottom; Policy intervention;

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References

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  1. Jörgen Hansen & Magnus Lofstrom, 2010. "Immigrant Assimilation and Welfare Participation: Do Immigrants Assimilate Into or Out-of Welfare," Working Papers id:2647, eSocialSciences.
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