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Welfare Competition in Norway

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  • Jørn Rattsø

    ()
    (Department of Economics, Norwegian University of Science and Technology)

  • Jon Hernes Fiva

    ()
    (Department of Economics, Norwegian University of Science and Technology)

Abstract

Local 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 Info

Paper provided by Department of Economics, Norwegian University of Science and Technology in its series Working Paper Series with number 4204.

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Length: 30 pages
Date of creation: 01 Jun 2004
Date of revision:
Handle: RePEc:nst:samfok:4204

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  1. Alberto Alesina & Reza Baqir & William Easterly, 1998. "Redistributive Public Employment," NBER Working Papers 6746, National Bureau of Economic Research, Inc.
  2. Borge, Lars-Erik & Rattso, J.Jorn, 2004. "Income distribution and tax structure: Empirical test of the Meltzer-Richard hypothesis," European Economic Review, Elsevier, vol. 48(4), pages 805-826, August.
  3. Anselin, Luc & Bera, Anil K. & Florax, Raymond & Yoon, Mann J., 1996. "Simple diagnostic tests for spatial dependence," Regional Science and Urban Economics, Elsevier, vol. 26(1), pages 77-104, February.
  4. Timothy Besley & Anne Case, 1992. "Incumbent Behavior: Vote Seeking, Tax Setting and Yardstick Competition," NBER Working Papers 4041, National Bureau of Economic Research, Inc.
  5. CREMER, Helmuth & PESTIEAU, Pierre, . "Factor mobility and redistribution," CORE Discussion Papers RP -1749, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Jan K. Brueckner, 1999. "Welfare Reform and the Race to the Bottom: Theory and Evidence," Southern Economic Journal, Southern Economic Association, vol. 66(2), pages 505-525, January.
  7. Bordignon, Massimo & Cerniglia, Floriana & Revelli, Federico, 2003. "In search of yardstick competition: a spatial analysis of Italian municipality property tax setting," Journal of Urban Economics, Elsevier, vol. 54(2), pages 199-217, September.
  8. Robin Boadway & Michael Keen, 1999. "Redistribution," Working Papers 983, Queen's University, Department of Economics.
  9. Charles Brown & Wallace E. Oates, 1985. "Assistance to the Poor in a Federal System," NBER Working Papers 1715, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Dahlberg, Matz & Edmark, Karin, 2004. "Is there a "Race-to-the-Bottom" in the Setting of Welfare Benefit Levels? Evidence from a Policy Intervention," Working Paper Series 2004:19, Uppsala University, Department of Economics.
  2. Hansjörg Blöchliger & José Maria Pinero Campos, 2011. "Tax Competition Between Sub-Central Governments," OECD Working Papers on Fiscal Federalism 13, OECD Publishing.
  3. Federico Revelli, 2005. "On Spatial Public Finance Empirics," International Tax and Public Finance, Springer, vol. 12(4), pages 475-492, August.

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