Work requirements in means-tested transfer programs have grown in importance in the U.S. and in some other countries. The theoretical literature which considers their possible optimality generally operates within a traditional welfarist framework where some function of the utility of the poor is maximized. Here we consider a case where society is paternalistic and instead has preferences over the actual work allocations of welfare recipients. With this social welfare function, optimality of work requirements is possible but depends on the accuracy of the screening mechanism which assigns work requirements to some benefit recipients and not others. Numerical simulations show that the accuracy must be high for such optimality to occur. The simulations also show that earnings subsidies can be justified with the type of social welfare function used here.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
12366.
Length: Date of creation: Jul 2006 Date of revision: Handle: RePEc:nbr:nberwo:12366
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Find related papers by JEL classification: H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation I38 - Health, Education, and Welfare - - Welfare and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
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