Optimal disability assistance when fraud and stigma matter

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Optimal disability assistance when fraud and stigma matter

Author Info

Laurence Jacquet (Université Catholique de Louvain)

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Laurence Michèle Jacquet

Abstract

I study the optimal redistributive structure when individuals with distinct productivities also differ in disutility of work due to either disability or distaste for work. Taxpayers have resentment against inactive benefit recipients because some of them are not actually disabled but lazy. Therefore disabled people who take up transfers are stigmatized. Their stigma disutility increases with the number of non-disabled recipients. Tagging transfers according to disability characteristics decreases stigma. However, tagging is costly and imperfect. In this context, I show how the level of the per capita cost of monitoring relative to labour earnings of low-wage workers determines the optimality of tagging. Under mild conditions, despite their stigma disutility, inactive and disabled people get a strictly lower consumption than low-wage workers. The results are valid under a utilitarian criterion and a criterion which does not compensate for distaste for work.

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Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1098.

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Length: 30 pages
Date of creation: Nov 2006
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Handle: RePEc:qed:wpaper:1098

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Paper
- Laurence, JACQUET, 2006. "Optimal disability assistance when fraud and stigma matter," UniversitÃ© catholique de Louvain, DÃ©partement des Sciences Economiques Working Paper 2006052, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]

Find related papers by JEL classification:
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
I3 - Health, Education, and Welfare - - Welfare and Poverty

This paper has been announced in the following NEP Reports:

NEP-ALL-2006-12-01 (All new papers)

References listed on IDEAS
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