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Does Welfare Policy Affect Residential Choices? Evidence from a Natural Experiment

This paper studies how changes in welfare benefit levels affect welfare recipients’ residential choices. Although several empirical studies have stressed that welfare policy may affect residential choices of welfare recipients, few studies have simultaneously taken into account that residential choices of welfare recipients also affect welfare policy. The main contribution of this paper is to address this policy endogeneity by utilizing a policy reform as a natural experiment. The results show that welfare policy exerts a nontrivial effect on residential choices of welfare recipients. Moreover, I show that ignoring the policy endogeneity may give rise to a downward bias in the estimated migration responses.

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Paper provided by Statistics Norway, Research Department in its series Discussion Papers with number 503.

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Date of creation: May 2007
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Handle: RePEc:ssb:dispap:503
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  1. 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.
  2. Federico Revelli, 2004. "Performance Rating and Yardstick Competition in Social Service Provision," CESifo Working Paper Series 1270, CESifo Group Munich.
  3. Bruce D. Meyer, 1994. "Natural and Quasi- Experiments in Economics," NBER Technical Working Papers 0170, National Bureau of Economic Research, Inc.
  4. Phillip B. Levine & David J. Zimmerman, 1995. "An Empirical Analysis of the Welfare Magnet Debate Using the NLSY," NBER Working Papers 5264, National Bureau of Economic Research, Inc.
  5. Besley, Timothy & Case, Anne, 2000. "Unnatural Experiments? Estimating the Incidence of Endogenous Policies," Economic Journal, Royal Economic Society, vol. 110(467), pages F672-94, November.
  6. McKinnish, Terra, 2007. "Welfare-induced migration at state borders: New evidence from micro-data," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 437-450, April.
  7. Fiva, Jon H. & Rattso, Jorn, 2006. "Welfare competition in Norway: Norms and expenditures," European Journal of Political Economy, Elsevier, vol. 22(1), pages 202-222, March.
  8. Wildasin, David E, 1991. "Income Redistribution in a Common Labor Market," American Economic Review, American Economic Association, vol. 81(4), pages 757-74, September.
  9. Moffitt, Robert, 1992. "Incentive Effects of the U.S. Welfare System: A Review," Journal of Economic Literature, American Economic Association, vol. 30(1), pages 1-61, March.
  10. Terra McKinnish, 2005. "Importing the Poor: Welfare Magnetism and Cross-Border Welfare Migration," Journal of Human Resources, University of Wisconsin Press, vol. 40(1).
  11. 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.
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