EC306 Chapter Notes - Chapter 3: Phenylalanine, Social Stigma, Budget Constraint
Document Summary
Chapter 3 labor supply and public policy: work incentive effects of alternative income. Income maintenance schemes: aimed at raising the income of certain groups and to supplement low wages. Imagine that there is a well-defined poverty line, z. If a pe(cid:396)so(cid:374)"s i(cid:374)(cid:272)o(cid:373)e (cid:455)i, falls below z, we define him or her as poor, and one objective of an income maintenance program may be to eliminate poverty; that is, raise income (at least) to z. Universal scheme/ demogrant: give everyone in the economy the same transfer, ti = z, no matter what their income, yi. Perfectly targeted program: give everyone exactly enough transfer to reach the poverty line: ti=z-yi. Only those people with income below the poverty line would receive transfers, they would all attain income level z. For every extra dollar of income earned, the transfer is reduced by one dollar. If earning income is costly activity, individuals may reduce work effort, so the program becomes more expensive.
