Stigma model of welfare fraud and non‐take‐up: Theory and evidence from OECD panel data

Abstract

This paper attempts to challenge two puzzles in the welfare program. The first puzzle is `non-take-up welfare,' which occurs when needy people do not take up welfare. Second, in some countries, the benefit level is high, but the recipient ratio is low; while the other nations have lower benefit levels but higher recipient ratios. We present a model of welfare stigma in which both non-take-up and welfare fraud exist within the equilibrium. This shows the possibility for the recipient ratio to decrease as the benefit level increases in the comparative statics. Our empirical results are consistent with our theoretical results.