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Social Transfers and Spatial Distortions

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  • Mark Colas
  • Robert McDonough

Abstract

US social transfer programs vary substantially across states, incentivizing households to locate in states with more generous transfer programs. Furthermore, transfer formulas often decrease in income, thereby rewarding low-income households for living in low-paying cities. We quantify these distortions by combining a spatial equilibrium model with a detailed model of transfer programs in the United States. The current system leads to locational inefficiency of 4.88% of total transfer spending. A reform that both harmonizes transfer policies across states and indexes household income to local average earnings reduces this inefficiency by more than 60% while preserving the programs’ means-tested nature.

Suggested Citation

  • Mark Colas & Robert McDonough, 2025. "Social Transfers and Spatial Distortions," Journal of Labor Economics, University of Chicago Press, vol. 43(1), pages 161-201.
    • Handle: RePEc:ucp:jlabec:doi:10.1086/725873
    DOI: 10.1086/725873
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