Should Subsidized Private Transfers Replace Government Social Insurance?
August 1, 2000
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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.
Subject: Expenditure, Financial sector policy and analysis, Income, Labor, Labor markets, Moral hazard, National accounts, Social assistance spending, Tax allowances, Taxes
Keywords: Altruism, asymmetric information, charity, consumption externality, equilibrium price, Income, income risk, labor market, labor market externality, labor market outcome, labor market response, Labor markets, marginal utility, Moral hazard, non-governmental organizations (NGOs), nonmarket transfers, Social assistance spending, social insurance, Tax allowances, utility function, welfare cost, welfare effect, WP
Pages:
26
Volume:
2000
DOI:
Issue:
150
Series:
Working Paper No. 2000/150
Stock No:
WPIEA1502000
ISBN:
9781451856958
ISSN:
1018-5941
