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Transfers, Social Safety Nets, and Economic Growth [electronic resource] / Xavier Sala-i-Martin.

By: Sala-i-Martin, Xavier.
Material type: materialTypeLabelBookSeries: IMF Working Papers; Working Paper: No. 96/40Publisher: Washington, D.C. : International Monetary Fund, 1996Description: 1 online resource (31 p.).ISBN: 1451845928 :.ISSN: 1018-5941.Subject(s): Amount of Crime | Criminal Behavior | Economic Growth | Productive Public Spending | Public Welfare | Social Safety Nets | China, People's Republic of | Germany | Spain | United StatesAdditional physical formats: Print Version:: Transfers, Social Safety Nets, and Economic GrowthOnline resources: IMF e-Library | IMF Book Store Abstract: This paper analyses the role of social safety nets in the form of redistributional transfers and wage subsidies. It is argued that public welfare programs can be viewed as a crime-preventing or disruption-preventing devices because they tend to increase the opportunity cost of engaging in crime or disruptive activities. It is shown that, in the presence of a leisure choice, wage subsidies may be better than pure transfers. Using a simple growth model, the optimal size of the public welfare program is found and it is argued that public welfare should be financed with income (not lump-sum) taxes, despite the fact that income taxes are distortionary. The intuition for this result is that income taxes act as a user fee on congested public goods and transfers can be thought of as productive public goods subject to congestion. Finally, using a cross-section of 75 countries, the partial correlation between transfers and growth is shown to be significantly positive.
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This paper analyses the role of social safety nets in the form of redistributional transfers and wage subsidies. It is argued that public welfare programs can be viewed as a crime-preventing or disruption-preventing devices because they tend to increase the opportunity cost of engaging in crime or disruptive activities. It is shown that, in the presence of a leisure choice, wage subsidies may be better than pure transfers. Using a simple growth model, the optimal size of the public welfare program is found and it is argued that public welfare should be financed with income (not lump-sum) taxes, despite the fact that income taxes are distortionary. The intuition for this result is that income taxes act as a user fee on congested public goods and transfers can be thought of as productive public goods subject to congestion. Finally, using a cross-section of 75 countries, the partial correlation between transfers and growth is shown to be significantly positive.

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