What are the trades-offs involved in setting grant level

Assignment Help Econometrics

Reference no: EM131209381

Under the negative income tax all individuals are guaranteed a minimum standard of living by being awarded a grant, and the grant is reduced as their earnings rise (though by less than one for one). Alternatively, under wage subsidies, for each dollar of earnings up to some level, the government pays each person a refundable tax credit for each dollar earned up to some level. This tax credit is then phased out after reaching a maximum, so the credit goes to zero for middle-income taxpayers.

a. Compare the work incentives of the wage subsidy and the negative income tax for the entire income distribution. Use a diagram and explain.

b. Assume that the poverty line is fixed at $20,000. Design a negative income tax to combat poverty by choosing a basic grant level and an implicit tax rate at which this grant is reduced as incomes rise. What are the trades-offs involved in setting grant level and tax rate? What are the exigency and equity effects of choosing different grant levels and tax rates? How will the program affect people with different incomes?

c. Now consider the possibility of using categorical welfare grants. Under categorical welfare grants all individuals possessing certain characteristics are guaranteed a minimum standard of living, and the grant is taken away one for one as income rises. How should the government choose the right categories for targeting grants to some welfare groups?

d. What are the advantages and disadvantages of categorical grants relative to negative income tax?

Reference no: EM131209381

Questions Cloud

How much money do you have in the account : You just discovered that your spouse knew about the account the whole time and has been withdrawing $45 each month for the last 10 years. How much money do you have in the account?

Maximum allowable payback : Compute the payback period statistic for the following project and recommend whether the firm should accept or reject the project with the cash flow shown in the chart if the maximum allowable payback is 4 years

What would happen to interest rates on municipal securities : What would happen to interest rates on municipal securities, given each of the following scenarios?- The government increases marginal tax rates.

Journalize the entries to record the operations : Journalize the entries to record the operations, identifying each entry by letter. For a compound transaction, if an amount box does not require an entry, leave it blank.

What are the trades-offs involved in setting grant level : What are the advantages and disadvantages of categorical grants relative to negative income tax?

What is the expected short term interest rate : If the current short- term rate is 5 percent and the current long- term rate is 4 percent, what is the expected short- term interest rate?

Does this argument legitimize tax evasion : Economic exigency requires that consumers exploit all opportunities to increase their welfare. Does this argument legitimize tax evasion?

Would you provide the same arguments for violent crimes : Should the welfare of tax evaders be included in an assessment of social welfare? What if their inclusion implied that tax evasion should not be punished? Would you provide the same arguments for violent crimes?

Graph the yield curve : Assume that current interest rates on government securities are as follows: - one- year rate, 5 percent; two- year rate, 6 percent; three- year rate, 6.5 percent; four- year rate, 7 percent.- Graph the yield curve.

User Account

All Pages