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Is There a "Race-to-the-Bottom" in the Setting of Welfare Benefit Levels? Evidence from a Policy Intervention

Author

Listed:
  • Karin Edmark
  • Matz Dahlberg
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 65 SEK. This result seems to be robust to several alternative model specifications

Suggested Citation

  • Karin Edmark & Matz Dahlberg, 2004. "Is There a "Race-to-the-Bottom" in the Setting of Welfare Benefit Levels? Evidence from a Policy Intervention," Econometric Society 2004 North American Summer Meetings 473, Econometric Society.
    • Handle: RePEc:ecm:nasm04:473
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    More about this item

    Keywords

    Welfare benefit level; Strategic interactions; Race-to-the-bottom; Policy intervention;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D6 - Microeconomics - - Welfare Economics
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects

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