Variable rate subsidies: the inefficiency of in-kind transfers revisited
The inefficiency of fixed rate consumer price subsidies, relative to cash transfers, is one of the best-known propositions in welfare economics. It has also been used to show that matching grants are a more inefficient intergovernmental aid than are lump sum grants. Furthermore, the cost of fixed rate subsidies cannot be controlled without providing a “cap” beyond which amount no subsidy is received. This paper reports, both qualitatively and quantitatively, that a broad class of variable rate price subsidies also dominates fixed rate subsidies on both counts. The relative inefficiency of matching grants compared to the variable rate Federal General Revenue Sharing program is estimated.
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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Waldauer, Charles, 1973. "Grant Structures and Their Effects on Aided Government Expenditures: An Indifference Curve Analysis," Public Finance = Finances publiques, , vol. 28(2), pages 212-26.
- Kay, J. A., 1980. "The deadweight loss from a tax system," Journal of Public Economics, Elsevier, vol. 13(1), pages 111-119, February.
- Rosen, Harvey S, 1978.
"The Measurement of Excess Burden with Explicit Utility Functions,"
Journal of Political Economy,
University of Chicago Press, vol. 86(2), pages S121-35, April.
- Harvey S. Rosen, 1978. "The Measurement of Excess Burden with Explicit Utility Functions," NBER Chapters, in: Research in Taxation, pages 121-135 National Bureau of Economic Research, Inc.
- Stutzer, Michael J., 1982. "Another note on deadweight loss," Journal of Public Economics, Elsevier, vol. 18(2), pages 277-284, July.
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