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Income maintenance programs and multidimensional screening

Listed author(s):
  • Joel Shapiro

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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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
Handle: RePEc:upf:upfgen:544
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