Should Subsidized Private Transfers Replace Government Social Insurance?

Connel Fullenkamp and Ralph Chami

No 2000/150, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; labor market; utility function; equilibrium price; marginal utility; Altruism; charity; asymmetric information; social insurance; nonmarket transfers; non-governmental organizations (NGOs); labor market outcome; welfare effect; labor market externality; consumption externality; income risk; labor market response; welfare cost; Tax allowances; Social assistance spending; Labor markets; Moral hazard; Income (search for similar items in EconPapers)
Pages: 26
Date: 2000-08-01
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Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2000/150

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