Workfare in Germany and the Problem of Vertical Fiscal Externalities

24 Pages Posted: 14 Sep 2001

See all articles by Holger Feist

Holger Feist

Princeton University - Woodrow Wilson School of Public and International Affairs; CESifo (Center for Economic Studies and Ifo Institute)

Ronnie Schöb

Freie Universitaet Berlin; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: May 1999

Abstract

Social assistance to the poor is increasingly subject to compulsory work requirements in Germany. Municipalities have started to offer temporary employment in their job-creation companies to claimants who are able to work. These claimants earn wages and social insurance contributions if they accept the offer, but lose social assistance if they reject it. Further savings to local funds arise from the fact that when a worker's temporary employment ends, he or she is entitled to federal unemployment benefits which involve no costs for the municipality. The paper analyses this vertical fiscal externality and shows that in the long run, municipalities tend to employ a suboptimal number of welfare recipients in their companies. Federalism

Keywords: Social Assistance, Unemployment Insurance, Fiscal

JEL Classification: H53, D81

Suggested Citation

Feist, Holger and Schöb, Ronnie, Workfare in Germany and the Problem of Vertical Fiscal Externalities (May 1999). CESifo Working Paper Series No. 185. Available at SSRN: https://ssrn.com/abstract=273015

Holger Feist (Contact Author)

Princeton University - Woodrow Wilson School of Public and International Affairs ( email )

Princeton University
Princeton, NJ 08544-1021
United States
+1 609 258-2338 (Phone)
+1 609 258-2809 (Fax)

HOME PAGE: http://www.princeton.edu/~hfeist

CESifo (Center for Economic Studies and Ifo Institute) ( email )

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Munich, DE-81679
Germany
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49 89 39 73 03 (Fax)

Ronnie Schöb

Freie Universitaet Berlin ( email )

Boltzmannstraße 20
Berlin, Berlin 14195
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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