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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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  • Dahlberg, Matz
  • Edmark, Karin

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 by 100Â SEK, a municipality decreases its benefit level with approximately 41Â SEK. This result is robust to several alternative model specifications.

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  • Dahlberg, Matz & Edmark, Karin, 2008. "Is there a "race-to-the-bottom" in the setting of welfare benefit levels? Evidence from a policy intervention," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1193-1209, June.
  • Handle: RePEc:eee:pubeco:v:92:y:2008:i:5-6:p:1193-1209
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    Cited by:

    1. Joan Costa-i-Font & Filipe De-Albuquerque & Hristos Doucouliagos, 2011. "How Significant are Fiscal Interactions in Federations? A Meta-Regression Analysis," CESifo Working Paper Series 3517, CESifo Group Munich.
    2. Edmark, Karin & Ågren, Hanna, 2008. "Identifying strategic interactions in Swedish local income tax policies," Journal of Urban Economics, Elsevier, vol. 63(3), pages 849-857, May.
    3. Lyytikäinen, Teemu, 2012. "Tax competition among local governments: Evidence from a property tax reform in Finland," Journal of Public Economics, Elsevier, vol. 96(7-8), pages 584-595.
    4. Masayoshi Hayashi & Wataru Yamamoto, 2017. "Information sharing, neighborhood demarcation, and yardstick competition: an empirical analysis of intergovernmental expenditure interaction in Japan," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(1), pages 134-163, February.
    5. Edmark, Karin, 2007. "Strategic competition in Swedish local spending on childcare, schooling and care for the elderly," Working Paper Series 2007:22, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    6. Dahlberg, Matz & Edmark, Karin, 2008. "Is there a "race-to-the-bottom" in the setting of welfare benefit levels? Evidence from a policy intervention," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1193-1209, June.
    7. Ulrich Hendel, 2014. "The Influence of Altruistic Preferences on the Race to the Bottom of Welfare States," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 70(2), pages 200-217, June.
    8. Matz Dahlberg & Eva Mörk, 2011. "Is There an Election Cycle in Public Employment? Separating Time Effects from Election Year Effects," CESifo Economic Studies, CESifo, vol. 57(3), pages 480-498, September.
    9. Costa-i-Font, Joan & De-Albuquerque, Filipe & Doucouliagos, Hristos, 2011. "How significant are fiscal interactions in designing federations?: a meta-regression analysis," LSE Research Online Documents on Economics 37535, London School of Economics and Political Science, LSE Library.
    10. Johansson, Fredrik & Klevmarken, Anders, 2006. "Explaining the size and nature of response in a survey on health status and economic standard," Working Paper Series 2006:2, Uppsala University, Department of Economics.
    11. Ania, Ana B. & Wagener, Andreas, 2016. "Decentralized redistribution in a laboratory federation," Journal of Urban Economics, Elsevier, vol. 93(C), pages 49-59.
    12. Agathe Rouaix & Charles Figuières & Marc Willinger, 2015. "The trade-off between welfare and equality in a public good experiment," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 45(3), pages 601-623, October.
    13. Matz Dahlberg & Karin Edmark & Heléne Lundqvist, 2012. "Ethnic Diversity and Preferences for Redistribution," Journal of Political Economy, University of Chicago Press, vol. 120(1), pages 41-76.
    14. Jakobsson, Niklas & Nordblom, Katarina, 2009. "Intergovernmental grants and fiscal competition," Working Papers in Economics 338, University of Gothenburg, Department of Economics.
    15. Che-Yuan Liang, 2013. "Is there an incumbency advantage or cost of ruling in proportional election systems?," Public Choice, Springer, vol. 154(3), pages 259-284, March.
    16. Jon H. Fiva, 2007. "Does Welfare Policy Affect Residential Choices? Evidence from a Natural Experiment," Discussion Papers 503, Statistics Norway, Research Department.
    17. Federico Revelli, 2005. "On Spatial Public Finance Empirics," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 12(4), pages 475-492, August.
    18. Luis Ayala & Elena Bárcena-Martín, 2016. "A unified approach for measuring welfare protection under a decentralized framework," Working Papers 405, ECINEQ, Society for the Study of Economic Inequality.
    19. Linda Toolsema & Maarten Allers, 2014. "Welfare Financing: Grant Allocation and Efficiency," De Economist, Springer, vol. 162(2), pages 147-166, June.
    20. Lunder, Trond Erik, 2016. "Between centralized and decentralized welfare policy: Have national guidelines constrained the influence of local preferences?," European Journal of Political Economy, Elsevier, vol. 41(C), pages 1-13.
    21. Berg, Lennart & Berger, Tommy, 2005. "The Q theory and the Swedish housing market –an empirical test," Working Paper Series 2005:19, Uppsala University, Department of Economics.
    22. Fiva, Jon H., 2009. "Does welfare policy affect residential choices? An empirical investigation accounting for policy endogeneity," Journal of Public Economics, Elsevier, vol. 93(3-4), pages 529-540, April.
    23. Xu (Susan) Tang, 2017. "Competition or Coordination: Strategic Environmental Policymaking Across OECD Countries," 2017 Papers pta721, Job Market Papers.
    24. Hendel, Ulrich, 2012. "The Influence of Altruistic Preferences on the Race to the Bottom of Welfare States," Discussion Papers in Economics 13999, University of Munich, Department of Economics.

    More about this item

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D60 - Microeconomics - - Welfare Economics - - - General
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects

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