The different programs discussed in this chapter often have ambiguous effects on work effort. It is, nonetheless, possible to compare the work incentives of two programs by looking at what happens when the individual is indifferent between two programs. Use this approach to compare the work incentives of the following two pairs of programs: a. Earned income tax credit compared to welfare (discuss this only during the phase-in part of the EITC which would be the more likely scenario for an agent to be at risk of non-participating in the labor market). b. Wages subsidy compared to a negative income tax. In both cases, use graphs to show the hours of work chosen under the two programs by an individual who is indifferent between the two programs.
4. The different programs discussed in this chapter often have ambiguous effects on work effort. It is, nonetheless, possible to compare the work incentives of two programs by looking at what happens when the individual is indifferent between two programs. Use this approach to compare the work incentives of the following two pairs of programs: a. Earned income tax credit compared to welfare (discuss this only during the phase-in part of the EITC which would be the more likely scenario for an agent to be at risk of non-participating in the labor market). b. Wages subsidy compared to a negative income tax. In both cases, use graphs to show the hours of work chosen under the two programs by an individual who is indifferent between the two programs.
Step by step
Solved in 2 steps with 1 images
