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Workforce or Workfare? The Optimal Use of Work Requirements when Labor is Supplied along the Extensive Margin

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  • Laurence Jacquet
  • Craig Brett

    ()
    (THEMA, Universite de Cergy-Pontoise
    Mount Allison University, 144 Main Street, Sackville NB, E4L 1A7, Canada)

Abstract

This paper explores the use of workfare as part of a tax mix when labor supply responses are along the extensive margin. In an economy where the government has a priori chosen any tax-and-bene?t schedule, we show that, despite their common goal of providing additional incentives for individuals to enter the labor force, workfare and an earned income tax credit are at odds with each other. In the presence of an optimal nonlinear income tax, we also show that introducing unproductive workfare is always suboptimal when individuals face the same disutility of being on workfare. In contrast, when this disutility is heterogeneous, unproductive workfare may be a useful policy tool. We also provide a su¢ cient condition for productive workfare to be optimal.

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Bibliographic Info

Paper provided by THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise in its series THEMA Working Papers with number 2012-40.

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Date of creation: 2012
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Handle: RePEc:ema:worpap:2012-40

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Keywords: extensive margin; optimal income taxation; workfare.;

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References

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  1. Choné, Philippe & Laroque, Guy, 2011. "Optimal taxation in the extensive model," Journal of Economic Theory, Elsevier, vol. 146(2), pages 425-453, March.
  2. Kanbur, Ravi & Keen, Michael & Tuomala, Matti, 1994. "Optimal non-linear income taxation for the alleviation of income-poverty," European Economic Review, Elsevier, vol. 38(8), pages 1613-1632, October.
  3. Jacquet, Laurence & Lehmann, Etienne & Van der Linden, Bruno, 2010. "Optimal Redistributive Taxation with both Extensive and Intensive Responses," Discussion Paper Series in Economics 7/2010, Department of Economics, Norwegian School of Economics.
  4. Besley, Timothy & Coate, Stephen, 1995. "The Design of Income Maintenance Programmes," Review of Economic Studies, Wiley Blackwell, vol. 62(2), pages 187-221, April.
  5. Ahmad,Etisham & Stern,Nicholas, 1991. "The Theory and Practice of Tax Reform in Developing Countries," Cambridge Books, Cambridge University Press, number 9780521265638, December.
  6. Besley, Timothy & Coate, Stephen, 1992. "Workfare versus Welfare Incentive Arguments for Work Requirements in Poverty-Alleviation Programs," American Economic Review, American Economic Association, vol. 82(1), pages 249-61, March.
  7. Chone, Philippe & Laroque, Guy, 2005. "Optimal incentives for labor force participation," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 395-425, February.
  8. Emmanuel Saez, 2002. "Optimal Income Transfer Programs: Intensive Versus Extensive Labor Supply Responses," The Quarterly Journal of Economics, MIT Press, vol. 117(3), pages 1039-1073, August.
  9. Craig Brett, 2005. "Bunching, Time Constraints, and Workfare," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(1), pages 93-105, 02.
  10. Brett, Craig, 1998. "Who Should Be on Workfare? The Use of Work Requirements as Part of an Optimal Tax Mix," Oxford Economic Papers, Oxford University Press, vol. 50(4), pages 607-22, October.
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