Abstract:Why are in-kind transfers a prominent feature of the U.S. social safety net, and why is such a significant fraction of these benefits given to individuals who do not actively supply labor in the market? This paper presents home production as a novel rationalization for such transfers. It first shows that in a broad class of dynamic Mirrleesian models that include only market production, the optimal allocation features undistorted marginal rates of substitution between goods whenever agents are not working, and… Show more
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