Working Paper Series, Department of Economics, Uppsala University
No 2004:19:
Is there a "Race-to-the-Bottom" in the Setting of Welfare Benefit Levels? Evidence from a Policy Intervention
Matz Dahlberg ()
and Karin Edmark ()
Abstract: 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 with 100 SEK, a municipality decreases its benefit
level with approximately 59 SEK. This result is robust to several
alternative model specifications.
Keywords: Welfare benefit level; Strategic interactions; Race-to-the-bottom; Policy intervention; (follow links to similar papers)
JEL-Codes: C33; D60; H73; (follow links to similar papers)
34 pages, November 24, 2004
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- This paper is published as:
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Dahlberg, Matz and Karin Edmark, (2008), 'Is there a "Race-to-the-Bottom" in the Setting of Welfare Benefit Levels? Evidence from a Policy Intervention', Journal of Public Economics, Vol. 92, pages 1193-1209
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