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Welfare Competition in Norway

Author

Listed:
  • 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.

Suggested Citation

  • Jørn Rattsø & Jon Hernes Fiva, 2004. "Welfare Competition in Norway," Working Paper Series 4204, Department of Economics, Norwegian University of Science and Technology.
  • Handle: RePEc:nst:samfok:4204
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    File URL: http://www.svt.ntnu.no/iso/WP/2004/7jfjrejpesub.pdf
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    References listed on IDEAS

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    1. Besley, Timothy & Case, Anne, 1995. "Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition," American Economic Review, American Economic Association, vol. 85(1), pages 25-45, March.
    2. Alesina, Alberto & Baqir, Reza & Easterly, William, 2000. "Redistributive Public Employment," Journal of Urban Economics, Elsevier, vol. 48(2), pages 219-241, September.
    3. Brown, Charles C. & Oates, Wallace E., 1987. "Assistance to the poor in a federal system," Journal of Public Economics, Elsevier, vol. 32(3), pages 307-330, April.
    4. 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.
    5. Cremer, Helmuth & Pestieau, Pierre, 2004. "Factor mobility and redistribution," Handbook of Regional and Urban Economics,in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 57, pages 2529-2560 Elsevier.
    6. 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.
    7. 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.
    8. Boadway, Robin & Keen, Michael, 2000. "Redistribution," Handbook of Income Distribution,in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 12, pages 677-789 Elsevier.
    9. 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.
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    Citations

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    Cited by:

    1. Hansjörg Blöchliger & José Maria Pinero Campos, 2011. "Tax Competition Between Sub-Central Governments," OECD Economics Department Working Papers 872, OECD Publishing.
    2. 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.
    3. 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.

    More about this item

    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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