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Title:State dependence in Canadian welfare participation PDF Logo
Authors:Hansen, Jörgen
Lofstrom, Magnus
Zhang, Xuelin
Issue Date:2006
Series/Report no.:IZA Discussion Papers 2266
Abstract:This paper analyzes transitions into and out-of Social Assistance in Canada. We estimate a dynamic Probit model, controlling for endogenous initial conditions and unobserved heterogeneity, using longitudinal data extracted from the Survey of Labour and Income Dynamics (SLID) for the years 1993-2000. The data indicates that there are substantial provincial differences in social assistance participation. The empirical results indicate that a welfare trap does exist in Canada, but the extent of it varies across provinces. The results also suggest that there is a link between provincial variations in structural and spurious state dependence and regional differences in welfare generosity. In particular, the existence of structural state dependence, or a welfare trap, appears to be more likely in provinces with relatively high benefit levels. One implication of this result is that a change in the welfare benefit structure is not likely to lower participation as significantly among less generous provinces as more generous ones.
Subjects:welfare
state dependence
unobserved heterogeneity
initial conditions
transition
Canada
JEL:I30
I38
J18
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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