2006
DOI: 10.1007/s10797-006-9010-z
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Should we subsidize work? Welfare reform, the earned income tax credit and optimal transfers

Abstract: During the 1990s, US income transfer and tax policies shifted towards trying to encourage work among low-income families. Optimal tax theory, however, suggests that work subsidies are usually an inefficient way to raise the incomes of poor families unless the work effort of recipients has external benefits and/or tax payer/voters prefer redistributing income to the working poor rather than the idle poor. This paper discusses the conditions under which work subsidies may be economically efficient and assesses e… Show more

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Cited by 10 publications
(6 citation statements)
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“…However, given the absence of guaranteed income support schemes, in-work benefits show their potential as a support targeted to the poorest individuals. As far as poverty reduction is concerned, even if individuals are not able to leave the poverty status, it is also important to consider the social externalities of increased labour market participation (Phelps, 2000) and the long-term effects on human capital (Acs and Toder, 2007) induced by the in-work benefits.…”
Section: Discussionmentioning
confidence: 99%
“…However, given the absence of guaranteed income support schemes, in-work benefits show their potential as a support targeted to the poorest individuals. As far as poverty reduction is concerned, even if individuals are not able to leave the poverty status, it is also important to consider the social externalities of increased labour market participation (Phelps, 2000) and the long-term effects on human capital (Acs and Toder, 2007) induced by the in-work benefits.…”
Section: Discussionmentioning
confidence: 99%
“…In other words, work subsidies are often inefficient tools to raise incomes of families at the low end of the income distribution. As noted by Acs and Toder (2007), this conclusion may not hold if individuals choose between jobs with fixed working hours and are not able to choose working hours along a continuous scale. A work subsidy may be optimal if the behavioral responses are concentrated on the extensive margin (the participation decision), as noted by Diamond (1980) and Saez (2002).…”
Section: The Economics Of Transfers To Families With Childrenmentioning
confidence: 99%
“…The competences that are needed for the employment are split into professional, social and conceptual competences (Savaneviciene & Katiliute, 2008). The vocational training systems (Gallie, 2007) for unemployed people could help them develop new skills and provide possibility increase their income in the future comparing to their current market wages and also facilitate labour market flexibility as the economies are being transferred to services and high technology economics (Acs & Toder, 2007;Howell, 2005).…”
Section: Unemployment Regulation Orientated Towards Employersmentioning
confidence: 99%