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Income maintenance programs and multidimensional screening

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  • Joel Shapiro

Abstract

This paper examines properties of optimal poverty assistance programs under different informational environments using an income maintenance framework. To that end, we make both the income generating ability and the disutility of labor of individuals unobservable, and compare the resulting benefit schedules with those of programs found in the United States since Welfare Reform (1996). We find that optimal programs closely resemble a Negative Income Tax with a Benefit Reduction rate that depends on the distribution of population characteristics. A policy of workfare (unpaid public sector work) is inefficient when disutility of labor is unobservable, but minimum work requirements (for paid work) may be used in that same environment. The distortions to work incentives and the presence of minimum work requirements depend on the observability and relative importance of the population's characteristics.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 544.

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Date of creation: Apr 2001
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Handle: RePEc:upf:upfgen:544

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Web page: http://www.econ.upf.edu/

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Keywords: Welfare programs; optimal taxation; multidimensional screening;

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Cited by:
  1. De Donder, Philippe & Hindricks, Jean, 2005. "Policy-oriented Parties and the Choice Between Social and Private Insurance," CEPR Discussion Papers 4864, C.E.P.R. Discussion Papers.
  2. Philippe De Donder & Jean Hindriks, 2007. "Equilibrium social insurance with policy-motivated parties," Working Papers 13446, Institut National de la Recherche Agronomique, France.
  3. Josepa Miquel-Florensa, 2010. "“Tell me what you need”: signaling with limited resources," Journal of Economics, Springer, vol. 99(1), pages 1-28, February.
  4. Craig Brett & John A. Weymark, 2000. "Financing Education Using Optimal Redistributive Taxation," Vanderbilt University Department of Economics Working Papers 0038, Vanderbilt University Department of Economics, revised May 2001.

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