Journal of Labor Economics Vol. 43 No. 1 2025
Social Transfers and Spatial Distortions
Abstract
US social transfer programs vary substantially across states, incentivizing households to locate in states with more generous transfer programs. Furthermore, transfer formulas often decrease in income, thereby rewarding low-income households for living in low-paying cities. We quantify these distortions by combining a spatial equilibrium model with a detailed model of transfer programs in the United States. The current system leads to locational inefficiency of 4.88% of total transfer spending. A reform that both harmonizes transfer policies across states and indexes household income to local average earnings reduces this inefficiency by more than 60% while preserving the programs’ means-tested nature.
- DOI
- 10.1086/725873
- Volume
- 43
- Issue
- 1
- Pages
- 161-201
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib