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Must a rise in wage rates reduce participation in negative income tax programs?
Examines the theoretical effect of wage rates on negative income tax (NIT) program participation rates. The effect of wages on NIT participation is theoretically ambiguous and depends upon whether the labor supply function is upward rising or backward bending. If the supply function is upward rising, wage rates must be inversely related to NIT participation rates. If, on the other hand, the labor supply function is backward bending, an increase in wages might increase NIT participation rates. Thus, an NIT program might be procyclical.
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