Welfare Competition in Norway
AbstractLocal redistribution policy creates incentives for welfare migration that may result in 'underprovision' or even a 'race to the bottom'. This paper evaluates the empirical importance of welfare competition. Our contribution is to separate between the policy decision and the actual welfare benefit payments and to introduce income distribution as a determinant of welfare policy. Utilizing spatial econometric methods we find statistical significant strategic interaction between local governments for both the welfare benefit norm decided by the local council and the expected welfare benefits of a standardized person. No robust relationship is found between inequality and welfare benefits and thus we offer no strong support for the Romer-Meltzer-Richard hypothesis. We conclude that there is a geographic pattern in welfare benefits. This does not necessarily imply underprovision, since the grant financing of the local governments may generate overall excessive public spending.
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Bibliographic InfoPaper provided by Department of Economics, Norwegian University of Science and Technology in its series Working Paper Series with number 4204.
Length: 30 pages
Date of creation: 01 Jun 2004
Date of revision:
Find related papers by JEL classification:
- C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
- D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
- H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
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