The aim of this study is to develop a method measuring the deadweight loss of social policy programs and particularly to estimate that of the National Basic Livelihood Security System in Korea.
We use the data of the Korea Welfare Panel Study for t...
The aim of this study is to develop a method measuring the deadweight loss of social policy programs and particularly to estimate that of the National Basic Livelihood Security System in Korea.
We use the data of the Korea Welfare Panel Study for the estimation, which accumulates a comprehensive survey on low-income persons. Also, we adopt two-stage least-squares (2SLS) including instrumental variables, to resolve the causality problem between an economic activity for income generation (an endogenous variable in our model) and subsidies from the National Basic Livelihood Security System (an exogenous variable in our model); two variables are simultaneously determined.
Our empirical results show that the market income per low-income household is reduced on average about 1.35 million won (27.6 percent of public subsidies) due to benefits from the National Basic Livelihood Security System. In addition, we finds that private income transfers cause the largest deadweight loss (13.7 percent of public subsidies), which account for more than a half of the total deadweight loss, and then labor/business income (7.2 percent) and asset income (2.9 percent) are following. This result indicates that public transfers crowd out a great deal of private transfers.