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Workfare in Germany and the Problem of Vertical Fiscal Externalities

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  • Holger Feist
  • Ronnie Schöb

Abstract

Social assistance to the poor is increasingly subject to compulsory work requirements in Germany. Municipalities have started to offer temporary employment in their job-creation companies to claimants who are able to work. These claimants earn wages and social insurance contributions if they accept the offer, but lose social assistance if they reject it. Further savings to local funds arise from the fact that when a worker's temporary employment ends, he or she is entitled to federal unemployment benefits which involve no costs for the municipality. The paper analyses this vertical fiscal externality and shows that in the long run, municipalities tend to employ a suboptimal number of welfare recipients in their companies.

Suggested Citation

  • Holger Feist & Ronnie Schöb, 1999. "Workfare in Germany and the Problem of Vertical Fiscal Externalities," CESifo Working Paper Series 185, CESifo.
    • Handle: RePEc:ces:ceswps:_185
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    File URL: https://www.cesifo.org/DocDL/ces_wp185.pdf
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    References listed on IDEAS

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    1. Besley, Timothy & Coate, Stephen, 1992. "Workfare versus Welfare Incentive Arguments for Work Requirements in Poverty-Alleviation Programs," American Economic Review, American Economic Association, vol. 82(1), pages 249-261, March.
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    3. Sinn, Hans-Werner, 1994. "How Much Europe? Subsidiarity, Centralization and Fiscal Competition," Scottish Journal of Political Economy, Scottish Economic Society, vol. 41(1), pages 85-107, February.
    4. Nichols, Albert L & Zeckhauser, Richard J, 1982. "Targeting Transfers through Restrictions on Recipients," American Economic Review, American Economic Association, vol. 72(2), pages 372-377, May.
    5. Sinn, Hans-Werner, 1997. "The selection principle and market failure in systems competition," Journal of Public Economics, Elsevier, vol. 66(2), pages 247-274, November.
    6. Wildasin, David E, 1991. "Income Redistribution in a Common Labor Market," American Economic Review, American Economic Association, vol. 81(4), pages 757-774, September.
    7. Klanberg, Frank & Prinz, Aloys, 1984. "Sozialhilfe im Spannungsfeld gesellschafts- und haushaltspolitischer Interessen," Wirtschaftsdienst – Zeitschrift für Wirtschaftspolitik (1949 - 2007), ZBW - Leibniz Information Centre for Economics, vol. 64(5), pages 237-244.
    8. Gerlach, Knut & Stephan, Gesine, 1996. "A paper on unhappiness and unemployment in Germany," Economics Letters, Elsevier, vol. 52(3), pages 325-330, September.
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    Cited by:

    1. Schmid, Achim & Buhr, Petra, 2002. "Aktive Klienten - Aktive Politik? (Wie) Läßt sich dauerhafte Unabhängigkeit von Sozialhilfe erreichen? Ein Literaturbericht," Working papers of the ZeS 08/2002, University of Bremen, Centre for Social Policy Research (ZeS).
    2. Cockx, Bart, 1999. "The Design of Active Labour Market Policies. What Matters and What Doesn't ?," LIDAM Discussion Papers IRES 1999035, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    3. Bart COCKX, 2000. "The design of active labour market policies: Building in effective incentives," International Labour Review, International Labour Organization, vol. 139(4), pages 457-480, December.

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