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Is There a "Race-to-the-Bottom" in the Setting of Welfare Benefit Levels?: Evidence from a Policy Intervention
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Economics. Uppsala University, Units outside the University, Office of Labour Market Policy Evaluation.
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Economics. Uppsala University, Units outside the University, Office of Labour Market Policy Evaluation.
2008 (English)In: Journal of Public Economics, ISSN 0047-2727, E-ISSN 1879-2316, Vol. 92, no 5-6, 1193-1209 p.Article in journal (Refereed) Published
Abstract [en]

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

Place, publisher, year, edition, pages
2008. Vol. 92, no 5-6, 1193-1209 p.
Keyword [en]
Policy intervention, Race-to-the-bottom, Strategic interactions, Welfare benefit level
National Category
Economics and Business
Identifiers
URN: urn:nbn:se:uu:diva-96209DOI: 10.1016/j.jpubeco.2007.12.001ISI: 000255449700017OAI: oai:DiVA.org:uu-96209DiVA: diva2:170707
Available from: 2007-09-03 Created: 2007-09-03 Last updated: 2011-01-11Bibliographically approved

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