Exploring Macroeconomics
8th Edition
ISBN: 9781544337722
Author: Robert L. Sexton
Publisher: SAGE Publications, Inc
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Textbook Question
Chapter 9, Problem 1P
Why would means-tested transfer payments (such as food stamps, in which benefits are reduced as income rises) act like an income tax facing recipients?
Expert Solution & Answer
To determine
The reason behind means-transfer payment acting as an income tax facing recipients.
Explanation of Solution
For example, a thirty percent benefit reduction rate costs to a thirty percent income tax, except it is paid via receiving lower benefits. So when the benefits are reduced as income rises, it also reduces how much recipients keep of additional earnings like taxes.
Economics Concept Introduction
Concept Introduction:
In the case of income tax, as the income increases, the tax liability will also increase. And as the reason the means-transfer payment like food stamps act as an income tax facing recipients.
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