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The Welfare Effects of Asset Means-Testing Income Support

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  • Wellschmied, Felix

    (Universidad Carlos III de Madrid)

Abstract

This paper quantitatively determines the asset limit in income support programs which minimizes consumption volatility in a lifecycle model with incomplete markets and idiosyncratic earnings risk. An asset limit allows allocating transfers to those households with the highest utility gains from extra consumption. Moreover, it serves as substitute for history and age dependent taxation. However, a low limit provides incentives for high school dropouts to accumulate almost no wealth. Consequently, they miss self-insurance and suffer from high consumption volatility. For an unborn, these effects are optimally traded-off with an asset limit of $145000.

Suggested Citation

  • Wellschmied, Felix, 2015. "The Welfare Effects of Asset Means-Testing Income Support," IZA Discussion Papers 8838, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp8838
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    2. Maximilian Joseph Blömer & Sebastian Link & Andreas Peichl & Marc Stöckli, 2021. "The Effects of the Means-tested Basic Income Support on the Behavior of Households - an Overview," ifo Forschungsberichte, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 120.
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    5. Pham-Dao, Lien, 2016. "Public Insurance and Wealth Inequality - A Euro Area Analysis," VfS Annual Conference 2016 (Augsburg): Demographic Change 145942, Verein für Socialpolitik / German Economic Association.

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    More about this item

    Keywords

    means-tested programs; public insurance; incomplete markets;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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