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Tagging and Redistributive Taxation with Imperfect Disability Monitoring

  • Laurence jacquet

    ()

    (THEMA, Universite de Cergy-Pontoise and THEMA)

This paper studies the optimal income redistribution and optimal monitoring when disabil- ity bene?ts are intended for disabled people but some of the disabled do not claim disability bene?ts and enter the labor force. Classi?cation errors also occur. Some able applicants with high distaste for work are falsely granted disability bene?ts (type II errors) and some disabled applicants are denied disability bene?ts (type I errors). The accuracy of monitoring depends on the resources devoted to it. Labor supply responses are at the extensive margin. The paper derives the optimal income tax-transfer schedule that incorporates welfare and disability ben- e?ts and takes into account monitoring costs. The cost of monitoring and the co-existence of welfare and disability bene?ts play in favor of Earned Income Tax Credits for disabled workers who forgo disability bene?ts as well as for disabled workers who forgo welfare assistance.

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Paper provided by THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise in its series THEMA Working Papers with number 2013-01.

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Date of creation: 2013
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Handle: RePEc:ema:worpap:2013-01
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  1. Cremer Helmuth & Lozachmeur Jean-Marie & Pestieau Pierre, 2007. "Disability Testing and Retirement," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 7(1), pages 1-34, February.
  2. Pestieau, Pierre & Racionero, María, 2009. "Optimal redistribution with unobservable disability: Welfarist versus non-welfarist social objectives," European Economic Review, Elsevier, vol. 53(6), pages 636-644, August.
  3. Robin Boadway & Katherine Cuff, 1999. "Monitoring Job Search as an Instrument for Targeting Transfers," Working Papers 982, Queen's University, Department of Economics.
  4. Laurence Jacquet, 2010. "Take it or Leave it: Take-up, Optimal Transfer Programs, and Monitoring," CESifo Working Paper Series 3018, CESifo Group Munich.
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  7. Katherine Cuff, 2000. "Optimality of workfare with heterogeneous preferences," Canadian Journal of Economics, Canadian Economics Association, vol. 33(1), pages 149-174, February.
  8. Jianting Hu & Kajal Lahiri & Denton R. Vaughan & Bernard Wixon, 2001. "A Structural Model Of Social Security'S Disability Determination Process," The Review of Economics and Statistics, MIT Press, vol. 83(2), pages 348-361, May.
  9. Moffitt, Robert, 1983. "An Economic Model of Welfare Stigma," American Economic Review, American Economic Association, vol. 73(5), pages 1023-35, December.
  10. Jean-Marie Lozachmeur, 2006. "Disability insurance and optimal income taxation," International Tax and Public Finance, Springer, vol. 13(6), pages 717-732, November.
  11. 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.
  12. 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.
  13. Besley, Timothy & Coate, Stephen, 1992. "Understanding welfare stigma: Taxpayer resentment and statistical discrimination," Journal of Public Economics, Elsevier, vol. 48(2), pages 165-183, July.
  14. Laurence Jacquet & Bruno Van der Linden, 2006. "The Normative Analysis of Tagging Revisited: Dealing with Stigmatization," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 62(2), pages 168-198, June.
  15. Henrik Jacobsen Kleven & Wojciech Kopczuk, 2011. "Transfer Program Complexity and the Take-Up of Social Benefits," American Economic Journal: Economic Policy, American Economic Association, vol. 3(1), pages 54-90, February.
  16. Parsons, Donald O, 1980. "The Decline in Male Labor Force Participation," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 117-34, February.
  17. Stern, Nicholas, 1982. "Optimum taxation with errors in administration," Journal of Public Economics, Elsevier, vol. 17(2), pages 181-211, March.
  18. Ravi Kanbur & Jukka Pirttilä & Matti Tuomala, 2006. "Non-Welfarist Optimal Taxation And Behavioural Public Economics," Journal of Economic Surveys, Wiley Blackwell, vol. 20(5), pages 849-868, December.
  19. MARCHAND, Maurice & PESTIEAU, Pierre & DEL MAR RACIONERO, Maria, 2003. "Optimal redistribution when different workers are indistinguishable," CORE Discussion Papers 2003018, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  20. 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.
  21. Jonathan Gruber, 2000. "Disability Insurance Benefits and Labor Supply," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1162-1183, December.
  22. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  23. Diamond, Peter & Sheshinski, Eytan, 1995. "Economic aspects of optimal disability benefits," Journal of Public Economics, Elsevier, vol. 57(1), pages 1-23, May.
  24. Robert A. Moffitt, 2003. "Means-Tested Transfer Programs in the United States," NBER Books, National Bureau of Economic Research, Inc, number moff03-1, 07.
  25. Salanie, Bernard, 2002. "Optimal demogrants with imperfect tagging," Economics Letters, Elsevier, vol. 75(3), pages 319-324, May.
  26. Viard, Alan D, 2001. " Optimal Categorical Transfer Payments: The Welfare Economics of Limited Lump-Sum Redistribution," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 3(4), pages 483-500.
  27. Bound, John & Waidmann, Timothy, 1992. "Disability Transfers, Self-Reported Health, and the Labor Force Attachment of Older Men: Evidence from the Historical Record," The Quarterly Journal of Economics, MIT Press, vol. 107(4), pages 1393-419, November.
  28. Parsons, Donald O., 1996. "Imperfect 'tagging' in social insurance programs," Journal of Public Economics, Elsevier, vol. 62(1-2), pages 183-207, October.
  29. Jon Harkness, 1993. "Labour Force Participation by Disabled Males in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 26(4), pages 878-89, November.
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