Should Subsidized Private Transfers Replace Government Social Insurance?

Author/Editor:

Connel Fullenkamp ; Ralph Chami

Publication Date:

August 1, 2000

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Private transfers between individuals or through organized charities are increasingly viewed as an alternative for government social insurance programs. This paper models the incentive effects of government subsidized private transfers and finds that while there is a significant welfare benefit to subsidizing private transfers, there is also a significant welfare cost to this policy. It is shown analytically, as well as through simulations, that the optimal subsidy to private transfers is positive for a wide range of parameter values. This result indicates that subsidized private transfers in net terms are welfare enhancing.

Series:

Working Paper No. 2000/150

Subject:

Expenditure Financial sector policy and analysis Income Labor Labor markets Moral hazard National accounts Social assistance spending Tax allowances Taxes

English

Publication Date:

August 1, 2000

ISBN/ISSN:

9781451856958/1018-5941

Stock No:

WPIEA1502000

Pages:

26

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