Welfare Magnets, the Labor-Leisure Decision and Economic Efficiency

Citation

Saving, Jason Lee (1996) Welfare Magnets, the Labor-Leisure Decision and Economic Efficiency. Dissertation (Ph.D.), California Institute of Technology. doi:10.7907/sxj0-3216. https://resolver.caltech.edu/CaltechTHESIS:06292020-131040227

Abstract

This thesis examines the issue of welfare recipiency. In the first chapter, I develop a model designed to capture the fiscal externalities associated with redistributive policy in a system of jurisdictions. Previous work in the migration literature ignores work-disincentive effects and concludes that relatively generous jurisdictions will attract welfare recipients but repel workers. I present a model that integrates migration with labor-leisure choice and I find that inclusion of labor-leisure effects unambiguously worsens the fiscal externalities of redistribution. In addition, I derive conditions under which an increase in redistribution will harm its beneficiaries.

In the second chapter,I address the issue of benefit harmonization. Within both the European Union and the United States, advocates of redistribution have suggested that benefits be "harmonized" at levels offered by their most generous members in order to protect those members from the fiscal externalities associated with redistribution, and these advocates. further suggest that such a harmonization would enhance economic efficiency. The economic-efficiency argument is bolstered by traditional work in the public finance literature, but the work from which this conclusion is drawn does not account for the work-disincentive effects associated with redistributive policy. I find that, when work-disincentive effects are considered, the process of benefit harmonization need not improve economic efficiency unless the level at which benefits are harmonized is sufficiently low.

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