Should Government Transfers Be Adjusted for Geographical Cost Differences?

by Edgar O. Olsen

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An investigation of answers to the question of whether families of the same size and income should receive higher transfer payments from the federal government if they live in higher cost areas. Basic assumptions of a specific Paretian welfare economics model and some statements concerning individual preference functions are presented as conditions that must be satisfied if an allocation of resources is to be considered optimal. In the attempt to define an optimal subsidy, the food subsidy to an eligible family is expressed algebraically as the face value of a government issued certificate minus the charge. Unique demand curves are obtained for the transfer activity on the part of the recipient and taxpayers. The normative theory might be applied to the case of housing subsidy as well. 13 pp. Ref.

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