ECO339H1 Chapter Notes - Chapter 3: Negative Income Tax, Budget Constraint, Indifference Curve
Document Summary
Does not consider dynamic changes that can occur over time, or general equilibrium effects that can occur as the impact of the program works its way through the whole economic system. Income support programs affect behaviour by altering the individual"s opportunities (their potential income constraint) To analyze the effect of specific programs on the income constraint, ask first what is the effect on nonlabour income, and second, what is the effect on the slope of the constraint. A demogrant means an income grant to a specific demographic group. Demogrants are characterized by their complete universality: the benefit received does not depend on income or earnings. The demogrant generates a parallel shift of the budget constraint. The demogrant would shift the potential income constraint vertically upward by the amount of the grant. The slope of the new income constraint would be equal to the slope of the original constraint since the relative price of leisure has not changed.
