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Optimal disability assistance when fraud and stigma matter

  • Laurence Jacquet

    (Université Catholique de Louvain)

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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File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1098.pdf
File Function: First version 2006
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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
Date of revision:
Handle: RePEc:qed:wpaper:1098
Contact details of provider: Postal: Kingston, Ontario, K7L 3N6
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  1. Moffitt, Robert, 1983. "An Economic Model of Welfare Stigma," American Economic Review, American Economic Association, vol. 73(5), pages 1023-35, December.
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  3. Besley, Timothy & Coate, Stephen, 1992. "Understanding welfare stigma: Taxpayer resentment and statistical discrimination," Journal of Public Economics, Elsevier, vol. 48(2), pages 165-183, July.
  4. Bruce D. Meyer & Dan T. Rosenbaum, 1998. "Welfare, the Earned Income Tax Credit, and the Labor Supply of Single Mothers," JCPR Working Papers 32, Northwestern University/University of Chicago Joint Center for Poverty Research.
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  8. Hugo Benitez-Silva & Moshe Buchinsky & John Rust, 2005. "How Large are the Classification Errors in the Social Security Disability Award Process?," Department of Economics Working Papers 05-02, Stony Brook University, Department of Economics.
  9. Sheshinski, E. & Diamond, P., 1992. "Economic Aspects of Optimal Disability Benefits," Working papers 92-5, Massachusetts Institute of Technology (MIT), Department of Economics.
  10. Paul M. Romer, 1996. "Preferences, Promises, and the Politics of Entitlement," NBER Chapters, in: Individual and Social Responsibility: Child Care, Education, Medical Care, and Long-Term Care in America, pages 195-228 National Bureau of Economic Research, Inc.
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  16. repec:ese:iserwp:2004-04 is not listed on IDEAS
  17. Laurence Jacquet & Bruno Van der Linden, 2006. "The Normative Analysis of Tagging Revisited: Dealing with Stigmatization," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 62(2), pages 168-198, June.
  18. Salanie, Bernard, 2002. "Optimal demogrants with imperfect tagging," Economics Letters, Elsevier, vol. 75(3), pages 319-324, May.
  19. Hugo Benitez-Silva & Moshe Buchinsky & Hiu Man Chan & Sofia Cheidvasser & John Rust, 2000. "How Large is the Bias in Self-Reported Disability?," Working Papers 2000-01, Brown University, Department of Economics.
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  24. Jon Harkness, 1993. "Labour Force Participation by Disabled Males in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 26(4), pages 878-89, November.
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  26. Stephen Pudney & Ruth Hancock & Holly Sutherland, 2006. "Simulating the Reform of Means-tested Benefits with Endogenous Take-up and Claim Costs," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(2), pages 135-166, 04.
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