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This paper analyses the role of social safety nets in the form of redistributional transfers and wage subsidies. It is argued that public welfare programs can be viewed as a crime-preventing or disruption-preventing devices because they tend to increase the opportunity cost of engaging in crime or disruptive activities. It is shown that, in the presence of a leisure choice, wage subsidies may be better than pure transfers. Using a simple growth model, the optimal size of the public welfare program is found and it is argued that public welfare should be financed with income (not lump-sum) taxes, despite the fact that income taxes are distortionary. The intuition for this result is that income taxes act as a user fee on congested public goods and transfers can be thought of as productive public goods subject to congestion. Finally, using a cross-section of 75 countries, the partial correlation between transfers and growth is shown to be significantly positive.

Labor --- Macroeconomics --- Criminology --- Illegal Behavior and the Enforcement of Law --- Personal Income, Wealth, and Their Distributions --- Aggregate Factor Income Distribution --- Macroeconomics: Consumption --- Saving --- Wealth --- Labor Economics Policies --- National Government Expenditures and Welfare Programs --- Social Security and Public Pensions --- National Security and War --- Crime & criminology --- Labour --- income economics --- Crime --- Personal income --- Income inequality --- Consumption --- Employment subsidies --- National accounts --- Crime--Economic aspects --- Income --- Income distribution --- Economics --- Manpower policy --- United States

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