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Take it or Leave it : Optimal Transfer Programs, Monitoring and Takeup

  • Laurence JACQUET

    (Norvegian School of Economics and Business Administration)

This paper studie the optimal income redistribution and monitoring when disability benefits are intended for disabled people but where some able agents with high distastes for work mimic them (type II errors). Labour supply responses are at the extensive margin and endogenous takeup costs burden disabled recipients (due to a reputational externality caused by cheaters or due to a snowball effect). Under a non-welfarist criterion which does not compensate for distaste for work, (inactive) disabled recipients get a strictly lower consumption than disabled workers. The usual conditions under which the optimal transfer program is a Negative Income Tax or an Earned Income Tax Credit are challenged, due to monitoring. We also show that even if perfect monitoring is costless, it is optimal to have type II errors. These results are robust to a utilitarian criterion. Numerical simulations calibrated on US data are provided

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Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 2009003.

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Length: 39
Date of creation: 01 Feb 2009
Date of revision:
Handle: RePEc:ctl:louvir:2009003
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  1. Stephen Pudney & Ruth Hancock & Holly Sutherland, 2006. "Simulating the Reform of Means-tested Benefits with Endogenous Take-up and Claim Costs," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(2), pages 135-166, 04.
  2. Kroft, Kory, 2008. "Takeup, social multipliers and optimal social insurance," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 722-737, April.
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  8. Hugo Benitez-Silva & Moshe Buchinsky & Hiu Man Chan & Sofia Cheidvasser & John Rust, 2000. "How Large is the Bias in Self-Reported Disability?," Working Papers 2000-01, Brown University, Department of Economics.
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  12. Diamond, P., 1980. "Income taxation with fixed hours of work," Journal of Public Economics, Elsevier, vol. 13(1), pages 101-110, February.
  13. Diamond, Peter & Sheshinski, Eytan, 1995. "Economic aspects of optimal disability benefits," Journal of Public Economics, Elsevier, vol. 57(1), pages 1-23, May.
  14. Eissa, Nada & Liebman, Jeffrey B, 1996. "Labor Supply Response to the Earned Income Tax Credit," The Quarterly Journal of Economics, MIT Press, vol. 111(2), pages 605-37, May.
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  18. Robin Boadway & Katherine Cuff, 1999. "Monitoring Job Search as an Instrument For Targeting Transfers," International Tax and Public Finance, Springer, vol. 6(3), pages 317-337, August.
  19. Kanbur, Ravi & Pirttila, Jukka & Tuomala, Matti, 2004. "Non-Welfarist Optimal Taxation And Behavioral Public Economics," Working Papers 127150, Cornell University, Department of Applied Economics and Management.
  20. Ted O'Donoghue & Matthew Rabin, 2003. "Studying Optimal Paternalism, Illustrated by a Model of Sin Taxes," American Economic Review, American Economic Association, vol. 93(2), pages 186-191, May.
  21. Marc Fleurbaey & François Maniquet, 2006. "Compensation and responsibility," Working Papers halshs-00121367, HAL.
  22. Emmanuel Saez, 2000. "Optimal Income Transfer Programs: Intensive Versus Extensive Labor Supply Responses," NBER Working Papers 7708, National Bureau of Economic Research, Inc.
  23. Boadway, Robin & Marceau, Nicolas & Sato, Motohiro, 1999. "Agency and the design of welfare systems," Journal of Public Economics, Elsevier, vol. 73(1), pages 1-30, July.
  24. Hugo Benitez-Silva & Moshe Buchinsky & John Rust, 2004. "How Large are the Classification Errors in the Social Security Disability Award Process?," NBER Working Papers 10219, National Bureau of Economic Research, Inc.
  25. Schokkaert, Erik & Van de gaer, Dirk & Vandenbroucke, Frank & Luttens, Roland Iwan, 2004. "Responsibility sensitive egalitarianism and optimal linear income taxation," Mathematical Social Sciences, Elsevier, vol. 48(2), pages 151-182, September.
  26. Katherine Cuff, 2000. "Optimality of workfare with heterogeneous preferences," Canadian Journal of Economics, Canadian Economics Association, vol. 33(1), pages 149-174, February.
  27. Salanie, Bernard, 2002. "Optimal demogrants with imperfect tagging," Economics Letters, Elsevier, vol. 75(3), pages 319-324, May.
  28. Blundell, Richard & Macurdy, Thomas, 1999. "Labor supply: A review of alternative approaches," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 27, pages 1559-1695 Elsevier.
  29. Emmanuel Saez, 2000. "Using Elasticities to Derive Optimal Income Tax Rates," NBER Working Papers 7628, National Bureau of Economic Research, Inc.
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