Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/34031
Authors: 
Hansen, Jörgen
Lofstrom, Magnus
Zhang, Xuelin
Year of Publication: 
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

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