Workfare in Germany and the Problem of Vertical Fiscal Externalities

Holger Feist and Ronnie Schöb
Authors registered in the RePEc Author Service: Ronnie Schoeb

No 185, CESifo Working Paper Series from CESifo

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.

Keywords: Social assistance; unemployment insurance; fiscal federalism (search for similar items in EconPapers)
Date: 1999
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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