Ruhr Economic Papers

Ruhr Economic Papers #606

Do Welfare Dependent Neighbors Matter for Individual Welfare Dependency?

by Thomas K. Bauer and Rui Dang

RGS Econ, RUB, RWI, 02/2016, 11 S./p., 8 Euro, ISBN 978-3-86788-703-8 DOI: 10.4419/86788703

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Abstract

This paper investigates neighborhood peer effects on individual welfare using a combined IV and control function approach. The empirical analysis is based on panel data for the years 2007-2010 constructed by enriching the geo-referenced version of the German Socio-Economic Panel (GSOEP) with aggregated zip code level-information. The results suggest that individual welfare use is positively correlated with neighborhood social benefit recipient rates, i.e. an increase in the share of neighborhood peers on social benefit by 1 percentage point raises the individual probability of welfare use by 0.97 percentage points.

JEL-Classification: I38, R23

Keywords: Neighborhood effects; welfare use; non-random sorting

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