Incentive Effects of Some Pure and Mixed Transfer Systems.

by Michael C. Barth, David H. Greenberg

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An attempt to demonstrate that a wage subsidy (WS), when combined with some other income maintenance program, may have just as adverse an impact upon work incentives as a negative income tax (NIT). An analysis is presented which concentrates on a mixed wage subsidy-public assistance program compared with an NIT. A "pure" WS (not augmented by other forms of income maintenance) is also compared with an NIT. The static incentive effects of the three alternative programs, in the form of substitution effects and income effects, are compared. Except for a few extraordinary families, a pure WS appears to be less leisure-inducing than an NIT. But when the WS is supplemented by other forms of income maintenance, such as public assistance, its relative advantage may be neutralized. While it is very possible that an applied WS would be superior in its incentive effects to an NIT, it need not be. 30 pp.

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