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Incentive Effects of Social Assistance: A Regression Discontinuity Approach

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Author Info
Thomas Lemieux
Kevin Milligan

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Abstract

We examine the incentive effects of transfer programs using a unique policy episode. Prior to 1989, social assistance recipients without children in Quebec who were under age 30 received benefits 60 percent lower than recipients older than 30. We use this sharp discontinuity in policy to estimate the effects of social assistance on various labour market outcomes and on living arrangements using a regression discontinuity approach. We find strong evidence that more generous social assistance benefits reduce employment, and more suggestive evidence that they affect marital status and living arrangements. The regression discontinuity estimates exhibit little sensitivity to the degree of flexibility in the specification, and perform very well when we control for unobserved heterogeneity using a first difference specification. Finally, we show that commonly used difference-in-difference estimators may perform poorly when control groups are inappropriately chosen.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10541.

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Date of creation: Jun 2004
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Handle: RePEc:nbr:nberwo:10541

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Find related papers by JEL classification:
H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
I3 - Health, Education, and Welfare - - Welfare and Poverty

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Fortin, Bernard & Lacroix, Guy & Drolet, Simon, 2004. "Welfare benefits and the duration of welfare spells: evidence from a natural experiment in Canada," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1495-1520, July. [Downloadable!] (restricted)
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  3. Moffitt, Robert, 1992. "Incentive Effects of the U.S. Welfare System: A Review," Journal of Economic Literature, American Economic Association, vol. 30(1), pages 1-61, March. [Downloadable!] (restricted)
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  5. Kapsalis, Costa & McKenzie, Robert, 2001. "An Assessment of EI and SA Reporting in SLID," Analytical Studies Branch Research Paper Series 2001166e, Statistics Canada, Analytical Studies Branch. [Downloadable!]
  6. Carol Harvey & Michael J. Camasso & Radha Jagannathan, 2000. "Evaluating Welfare Reform Waivers under Section 1115," Journal of Economic Perspectives, American Economic Association, vol. 14(4), pages 165-188, Fall. [Downloadable!] (restricted)
  7. Thomas Lemieux & Kevin Milligan, 2004. "Incentive Effects of Social Assistance: A Regression Discontinuity Approach," NBER Working Papers 10541, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Hilary Williamson Hoynes, 2000. "Local Labor Markets And Welfare Spells: Do Demand Conditions Matter?," The Review of Economics and Statistics, MIT Press, vol. 82(3), pages 351-368, August. [Downloadable!] (restricted)
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  9. Murphy, Kevin M & Welch, Finis, 1990. "Empirical Age-Earnings Profiles," Journal of Labor Economics, University of Chicago Press, vol. 8(2), pages 202-29, April. [Downloadable!] (restricted)
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  12. David S. Lee & David Card, 2006. "Regression Discontinuity Inference with Specification Error," NBER Technical Working Papers 0322, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Robert Moffitt, 2002. "Welfare Programs and Labor Supply," NBER Working Papers 9168, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Olivier Blanchard, 2004. "The Economic Future of Europe," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 3-26, Fall. [Downloadable!] (restricted)
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  16. Baker, Michael & Payne, A. Abigail & Smart, Michael, 1999. "An empirical study of matching grants: the 'cap on CAP'," Journal of Public Economics, Elsevier, vol. 72(2), pages 269-288, May. [Downloadable!] (restricted)
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  17. Marianne Bitler & Jonah Gelbach & Hilary Hoynes, 2004. "Welfare Reform and Health," NBER Working Papers 10549, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  18. Kevin Milligan, 2005. "Subsidizing the Stork: New Evidence on Tax Incentives and Fertility," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 539-555, 06. [Downloadable!] (restricted)
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  19. Marianne P. Bitler & Jonah B. Gelbach & Hilary W. Hoynes, 2003. "Welfare Reform and Children's Living Arrangements," Working Papers 111, RAND Corporation Publications Department. [Downloadable!]
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  20. Robert A. Moffitt, 2003. "Means-Tested Transfer Programs in the United States," NBER Books, National Bureau of Economic Research, Inc, number moff03-1.
  21. Hahn, Jinyong & Todd, Petra & Van der Klaauw, Wilbert, 2001. "Identification and Estimation of Treatment Effects with a Regression-Discontinuity Design," Econometrica, Econometric Society, vol. 69(1), pages 201-09, January.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Bargain, Olivier & Doorley, Karina, 2009. "Caught in the Trap? The Disincentive Effect of Social Assistance," IZA Discussion Papers 4291, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  2. Mette Ejrnæs & Gabriel Stefan Hochguertel, 2008. "Entrepreneurial Moral Hazard in Income Insurance: Empirical Evidence from a Large Administrative Sample," CAM Working Papers 2008-02, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics. [Downloadable!]
  3. Guido Imbens & Thomas Lemieux, 2007. "Regression Discontinuity Designs: A Guide to Practice," NBER Technical Working Papers 0337, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Ross Finnie & Ian Irvine, 2008. "The Welfare Enigma: Explaining the Dramatic Decline in Canadians' Use of Social Assistance, 1993-2005," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 267, June. [Downloadable!]
  5. Marco Manacorda & Edward Miguel & Andrea Vigorito, 2009. "Government Transfers and Political Support," CEP Discussion Papers dp0912, Centre for Economic Performance, LSE. [Downloadable!]
  6. Rafael Lalive, 2006. "How Do Extended Benefits Affect Unemployment Duration? A Regression Discontinuity Approach," IZA Discussion Papers 2200, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  7. Ingrid Ellen & Brendan O’Flaherty, 2007. "Social programs and household size: evidence from New York city," Population Research and Policy Review, Springer, vol. 26(4), pages 387-409, August. [Downloadable!] (restricted)
  8. David S. Lee & Thomas Lemieux, 2009. "Regression Discontinuity Designs in Economics," NBER Working Papers 14723, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  9. Ott-Siim Toomet, 2005. "Does an Increase in Unemployment Income Lead to Longer Unemployment Spells? Evidence Using Danish Unemployment Assistance Data," Bank of Estonia Working Papers 2005-09, Bank of Estonia, revised 10 Oct 2005. [Downloadable!]
  10. Lemieux, Thomas & Milligan, Kevin, 2006. "Incentive Effects of Social Assistance: A Regression Discontinuity Approach," Analytical Studies Branch Research Paper Series 2006280e, Statistics Canada, Analytical Studies Branch. [Downloadable!]
    Other versions:
  11. Marcos Chamon & João Manoel Pinho de Mello & Sergio Firpo, 2008. "Electoral rules, political competition and fiscal spending : regression discontinuity evidence from Brazilian municipalities," Textos para discussão 559, Department of Economics PUC-Rio (Brazil). [Downloadable!]
  12. von Below, David & Thoursie, Peter, 2008. "Last in, first out? Estimating the effect of seniority rules in Sweden," Working Paper Series 2008:27, IFAU - Institute for Labour Market Policy Evaluation. [Downloadable!]
  13. Manacorda, Marco & Miguel, Edward & Vigorito, Andrea, 2009. "Government Transfers and Political Support," CEPR Discussion Papers 7163, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  14. Mette Ejrnaes & Stefan Hochguertel, 2008. "Entrepreneurial Moral Hazard in Income Insurance," Tinbergen Institute Discussion Papers 08-065/3, Tinbergen Institute. [Downloadable!]
  15. Marco Manacorda & Edward Miguel & Andrea Vigorito, 2009. "Government Transfers and Political Support," NBER Working Papers 14702, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  16. Maria Knoth Humlum & Rune Majlund Vejlin, 2009. "The Effects of Financial Aid in High School on Academic and Labor Market Outcomes: A Quasi-Experimental Study," Economics Working Papers 2009-02, School of Economics and Management, University of Aarhus. [Downloadable!]
  17. Matthew Brzozowski, 2005. "Welfare Reforms and Consumption Among Single Mother Households: Evidence From Canadian Provinces," University of Western Ontario, RBC Financial Group Economic Policy Research Institute Working Papers 200510, University of Western Ontario, RBC Financial Group Economic Policy Research Institute. [Downloadable!]
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