Post on 18-Feb-2018
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19
CHAPTER
Government RedistributionGovernment Redistribution
ProgramsPrograms
PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall ol!ombe
7/23/2019 Holcombe 19
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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall ol!ombe 19-2
Cash Versus Payment In KindCash Versus Payment In Kind
Redistribution !an be "aid in !as# or inRedistribution !an be "aid in !as# or in
$ind$ind
Cas# "a%ments:Cas# "a%ments: Unem"lo%ment !om"ensationUnem"lo%ment !om"ensation
Tem"orar% &id to Need% 'amiliesTem"orar% &id to Need% 'amilies
In $ind "a%ments:In $ind "a%ments: 'ood stam"s'ood stam"s
ousing vou!#ersousing vou!#ers
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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall ol!ombe 19-3
Cash Payments and UtilityCash Payments and Utility
MaximizationMaximization C#ea"er to distribute !as# "a%mentsC#ea"er to distribute !as# "a%ments
Re!i"ients best $no( t#eir utilit% )un!tionRe!i"ients best $no( t#eir utilit% )un!tion
&re in best "osition to $no( #o( trans)er&re in best "osition to $no( #o( trans)ers#ould be s"ents#ould be s"ent
Cas# trans)er ma% ma$e an individualCas# trans)er ma% ma$e an individual
better o)) t#an "a%ment in $indbetter o)) t#an "a%ment in $ind
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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall ol!ombe 19-4
Cash Payments and UtilityCash Payments and Utility
MaximizationMaximization
Payment in Kindvs.
Cash Transer
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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall ol!ombe 19-5
Rationale or In!KindRationale or In!Kind
PaymentsPayments *usti)ied b% !onsidering utilit% o)*usti)ied b% !onsidering utilit% o)
ta+"a%erta+"a%er
In $ind "a%ments "aternalisti!In $ind "a%ments "aternalisti! In!rease de"enden!% on s%stem b% limitingIn!rease de"enden!% on s%stem b% limiting
abilit% to ma$e de!isionsabilit% to ma$e de!isions
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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall ol!ombe 19-6
"e#ative In$ome Tax"e#ative In$ome Tax
Poli!% o"tion to sim"li)% trans)er s%stemPoli!% o"tion to sim"li)% trans)er s%stem
I) "erson,s in!ome belo( !ertain level-I) "erson,s in!ome belo( !ertain level-
government "a%s "erson in!omegovernment "a%s "erson in!omesu""lementsu""lement
I) in!ome above t#at level- "erson "a%sI) in!ome above t#at level- "erson "a%s
ta+ta+
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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall ol!ombe 19-7
"e#ative In$ome Tax"e#ative In$ome Tax
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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall ol!ombe 19-8
In$entive to %u&stitute IntoIn$entive to %u&stitute Into
'eisure'eisure Substitution e))e!t . in!entive toSubstitution e))e!t . in!entive to
substitute leisure )or in!ome.earningsubstitute leisure )or in!ome.earninga!tivit%a!tivit%
/isin!entive e))e!ts )rom in!ome trans)er/isin!entive e))e!ts )rom in!ome trans)erno di))erent )rom t#ose o) ta+ on earnedno di))erent )rom t#ose o) ta+ on earnedin!omein!ome
Substitution e))e!t inevitableSubstitution e))e!t inevitable Trans)er "rograms do not ne!essaril%Trans)er "rograms do not ne!essaril%
result in #ig#er in!omeresult in #ig#er in!ome
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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall ol!ombe 19-9
In$entive to %u&stitute IntoIn$entive to %u&stitute Into
'eisure'eisure
A Redu$tion in
In$ome (ith a"e#ative In$ome
Tax
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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall ol!ombe 19-10
Redistri&ution and In$ome oRedistri&ution and In$ome o
the Poorthe Poor Redistribution in!reases (ell.being o) re!i"ientsRedistribution in!reases (ell.being o) re!i"ients
Ma% not a""ear to do so i) onl% dollar )iguresMa% not a""ear to do so i) onl% dollar )igures
e+aminede+amined
Ne!essar% to be "oor to 0uali)% )or "rogramsNe!essar% to be "oor to 0uali)% )or "rograms /isin!entive to earn ot#er in!ome/isin!entive to earn ot#er in!ome
Redistributive "rograms do no sim"l% addRedistributive "rograms do no sim"l% add
amount o) redistributed in!ome to in!omeamount o) redistributed in!ome to in!ome
re!i"ients (ould #ave (it#out "rogramre!i"ients (ould #ave (it#out "rogram
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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall ol!ombe 19-11
Ex$ess )urden o "e#ativeEx$ess )urden o "e#ative
In$ome TaxIn$ome Tax Substitution e))e!t !reates negativeSubstitution e))e!t !reates negative
e+!ess burdene+!ess burden
&""lies to an% trans)er "rogram redu!ing&""lies to an% trans)er "rogram redu!ing
bene)its to less need%bene)its to less need%
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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall ol!ombe 19-12
Ex$ess )urden o "e#ativeEx$ess )urden o "e#ative
In$ome TaxIn$ome Tax
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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall ol!ombe 19-13
Ex$ess )urden o "e#ativeEx$ess )urden o "e#ative
In$ome TaxIn$ome Tax 1irtues o) Negative In!ome Ta+1irtues o) Negative In!ome Ta+
Sim"le to administerSim"le to administer
Could redu!e total number o) trans)erCould redu!e total number o) trans)er"rograms"rograms
Cas# trans)erCas# trans)er
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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall ol!ombe 19-14
Earned In$ome Tax CreditEarned In$ome Tax Credit
*EITC+*EITC+ Closest "rogram to negative in!ome ta+Closest "rogram to negative in!ome ta+
Created in 2345Created in 2345
&mount o) !redit varies&mount o) !redit varies Im"lies 678 marginal ta+ rateIm"lies 678 marginal ta+ rate
Given to ta+"a%er even i) larger t#anGiven to ta+"a%er even i) larger t#an
amount o) ta+es dueamount o) ta+es due
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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall ol!ombe 19-15
Tem,orary Aid to "eedyTem,orary Aid to "eedy
-amilies *TA"-+-amilies *TA"-+ Created in 2334Created in 2334
Restri!ts re!i"ients to ma+imum o) 5 %ears o)Restri!ts re!i"ients to ma+imum o) 5 %ears o)
bene)itsbene)its
9el)are rolls #ave de!lined sin!e its in!e"tion9el)are rolls #ave de!lined sin!e its in!e"tion 'unding s#ared bet(een )ederal and state'unding s#ared bet(een )ederal and state
governmentsgovernments
&dministered at state level&dministered at state level Gives assistan!e to transition )rom (el)are toGives assistan!e to transition )rom (el)are to
(or$(or$
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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall ol!ombe 19-16
Tem,orary Aid to "eedyTem,orary Aid to "eedy
-amilies *TA"-+-amilies *TA"-+ T&N' re"la!ed &id to 'amilies (it#T&N' re"la!ed &id to 'amilies (it#
/e"endent C#ildren &'/C;/e"endent C#ildren &'/C;
&'/C gave in!entive to remain on (el)are&'/C gave in!entive to remain on (el)are
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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall ol!ombe 19-17
or/ or elareor/ or elare
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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall ol!ombe 19-18
-ood %tam,s-ood %tam,s
Establis#ed in 23<= to in!reaseEstablis#ed in 23<= to in!rease
agri!ultural demand>"rovide betteragri!ultural demand>"rovide better
nutrition to lo( in!ome )amiliesnutrition to lo( in!ome )amilies
'inan!ed b% )ederal government and'inan!ed b% )ederal government and
administered b% statesadministered b% states
Provides bene)its in $indProvides bene)its in $ind
?78 marginal ta+ rate?78 marginal ta+ rate
Ma% a!t li$e in!ome trans)erMa% a!t li$e in!ome trans)er
7/23/2019 Holcombe 19
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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall ol!ombe 19-19
-ood %tam,s-ood %tam,s
-ood %tam,s Are 'i/ea Cash Transer
7/23/2019 Holcombe 19
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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall ol!ombe 19-20
-ood %tam,s-ood %tam,s
E))e!tsE))e!ts /o not in!rease demand )or agri!ultural/o not in!rease demand )or agri!ultural
"rodu!ts"rodu!ts
Ma% not "rovide better nutritionMa% not "rovide better nutrition
E))e!ts (ould be little di))erent i)E))e!ts (ould be little di))erent i)
re"la!ed b% !as# trans)erre"la!ed b% !as# trans)er
Underground mar$et )or )ood stam"sUnderground mar$et )or )ood stam"s
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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall ol!ombe 19-21
-ood %tam,s-ood %tam,s
%ellin# -ood %tam,s
7/23/2019 Holcombe 19
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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall ol!ombe 19-22
Housin# %u&sidiesHousin# %u&sidies
Lo( in!ome #ousingLo( in!ome #ousing
Rent subsidiesRent subsidies
Lo( interest loansLo( interest loans
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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall ol!ombe 19-23
Pu&li$ Housin#Pu&li$ Housin#
Government.o(ned a"artment at belo(Government.o(ned a"artment at belo(
mar$et rentmar$et rent
Individual !an !#oose government #ousingIndividual !an !#oose government #ousing
or )orgo subsid%or )orgo subsid%
Unli$el% to "rovide same bene)it level asUnli$el% to "rovide same bene)it level as
!as# trans)er!as# trans)er
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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall ol!ombe 19-24
Pu&li$ Housin#Pu&li$ Housin#
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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall ol!ombe 19-25
Rent %u&sidiesRent %u&sidies
'ederal government e+"enditure'ederal government e+"enditure
Se!tion @ #ousingSe!tion @ #ousing
'ormula determines subsid% amount ea!#'ormula determines subsid% amount ea!#
re!i"ient eligible )orre!i"ient eligible )or
Creates disin!entive )or earning in!omeCreates disin!entive )or earning in!ome
Can s"end mone% to rent an% 0uali)%ingCan s"end mone% to rent an% 0uali)%ing
a"artmenta"artment
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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall ol!ombe 19-26
Rent %u&sidiesRent %u&sidies
7/23/2019 Holcombe 19
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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall ol!ombe 19-27
HomelessnessHomelessness
Most visible in maAor !itiesMost visible in maAor !ities
Man% su))er )rom drug>al!o#ol abuse orMan% su))er )rom drug>al!o#ol abuse or
mental illnessmental illness
In urban areas individuals ma% not beIn urban areas individuals ma% not be
able to a))ord minimum level o) #ousingable to a))ord minimum level o) #ousing
Ma$es it di))i!ult to obtain em"lo%mentMa$es it di))i!ult to obtain em"lo%ment
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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall ol!ombe 19-28
HomelessnessHomelessness
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PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall ol!ombe 19-29
HomelessnessHomelessness
Possible solutions:Possible solutions: In!ome trans)er "rogramsIn!ome trans)er "rograms
More ine+"ensive #ousingMore ine+"ensive #ousing
Publi! "oli!% #as removed mu!#Publi! "oli!% #as removed mu!#
ine+"ensive #ousing )rom mar$etine+"ensive #ousing )rom mar$et