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The Design Of Income Maintenance Programs

This paper provides a comprehensive treatment of a basic income maintenance problem for a group of individuals who differ in their income generating abilities. It stresses the impact that imperfect information about such abilities has on programme design. The analysis serves two purposes. First, we are able to unify the theoretical literature on the income maintenance problem. Second, we examine the impact of allowing the government to impose workfare on recipients of income support. In addition to being of policy interest, this is a theoretically challenging problem since it requires solving a multi-dimensional screening problem. The solution that we find is strikingly simple. It separates the poor into two categories, with the lower income groups subject to workfare while facing a 100% marginal tax rate on earnings. The second group does no public work and is offered a benefit schedule which taxes earnings at a lower rate.

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Paper provided by Princeton, Woodrow Wilson School - John M. Olin Program in its series Papers with number 74.

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Length: 60 pages
Date of creation: 1991
Date of revision:
Handle: RePEc:fth:priwol:74
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PRINCETON UNIVERSITY, WOODROW WILSON SCHOOL OF PUBLIC AND INTERNATIONAL AFFAIRS, PRINCETON NEW- JERSEY 08542 U.S.A.

Phone: (609) 258-4800
Web page: http://wws.princeton.edu/

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