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On the Dark Side of Welfare: Estimation of Welfare Recipients Labor Supply and Fraud

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Listed:
  • Dmitri Romanov
  • Noam Zussman

    () (Bank of Israel)

Abstract

The paper suggests a novel analytical and empirical framework for exploring labor market behavior and fraud among welfare recipients. First, cheating is introduced in the form of concealing information from social security authorities. Second, the relevance of working hours constraints is tested. Third, we study labor supply as well as participation decisions. Fourth, the model includes estimation of the labor supply decision under uncertainty, subject to a non-linear budget set. We find that when individual decisions involve illegitimate actions such as fraudulent collection of welfare benefits, immoral aspects are perceived as separable from the economic consequences of these actions. In addition, working hours constraints do provide obstacles to welfare recipients’ labor market participation.

Suggested Citation

  • Dmitri Romanov & Noam Zussman, 2001. "On the Dark Side of Welfare: Estimation of Welfare Recipients Labor Supply and Fraud," Bank of Israel Working Papers 2001.12, Bank of Israel.
  • Handle: RePEc:boi:wpaper:2001.12
    as

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    File Function: First version, 2001
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    References listed on IDEAS

    as
    1. Dickens, William T & Lundberg, Shelly J, 1993. "Hours Restrictions and Labor Supply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(1), pages 169-192, February.
    2. Burtless, Gary & Hausman, Jerry A, 1978. "The Effect of Taxation on Labor Supply: Evaluating the Gary Negative Income Tax Experiments," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 1103-1130, December.
    3. Martijn P. Tummers & Isolde Woittiez, 1991. "A Simultaneous Wage and Labor Supply Model with Hours Restrictions," Journal of Human Resources, University of Wisconsin Press, vol. 26(3), pages 393-423.
    4. Yaniv, Gideon, 1986. "Fraudulent collection of unemployment benefits : A theoretical analysis with reference to income tax evasion," Journal of Public Economics, Elsevier, vol. 30(3), pages 369-383, August.
    5. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
    6. Moffitt, Robert, 1982. "The Tobit Model, Hours of Work and Institutional Constraints," The Review of Economics and Statistics, MIT Press, vol. 64(3), pages 510-515, August.
    7. Shlomo Yitzhaki, 1987. "On the Excess Burden of Tax Evasion," Public Finance Review, , vol. 15(2), pages 123-137, April.
    8. Greenberg, David & Moffitt, Robert & Friedmann, John, 1981. "Underreporting and Experimental Effects on Work Effort: Evidence from the Gary Income Maintenance Experiment," The Review of Economics and Statistics, MIT Press, vol. 63(4), pages 581-589, November.
    9. Greenberg, David & Halsey, Harlan, 1983. "Systematic Misreporting and Effects of Income Maintenance Experiments on Work Effort: Evidence from the Seattle-Denver Experiment," Journal of Labor Economics, University of Chicago Press, vol. 1(4), pages 380-407, October.
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