13.12.2023 Redistribution#

two Types of Redistributional Policies

Welfare Policy#

Types of Welfare Programs

  • Categorical Welfare: by demographic characteristic (e.g Kindergeld)

  • Means-tested Welfare: by income limits (e.g Wohngeld)

=> many are both (e.g Bürgergeld)

Deliverance Types:

  • Cash: direct cash, with beenfit guarantee and reduction rate

  • In-kind: goods to recipients

Problem: some money lost on the ways (Leaky Bucket Problem)

  • admini strative costs

  • deadweight loss of taxation

  • moral hazard of poor people

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Moral Hazard in TANF#

Benfit Formula

\[ B = G-(\tau \times w \times h) \]

  • G = maximum benefit

  • \(\tau\) = reduction rate

  • \(w\) = wae

  • \(h\) = hours worked

Individual Responses at \(\tau = 0.5\)

img

=> Benefits lead to Working Hours Reduction

= Iron Triangle of welfare

  • encourage work

  • resdistribute more

  • lowe costs

Choose only 2!

Overcoming problems#

Categorical Welfare#

Target People based on their category

Requirements:

  • linked to earnings capacity

  • not changeable

e.g: Single Motherhood, Blindness

Ordeal Mechanisms#

make welfare unattractive = make people reveal earnings capacity

Example Mechanisms

  • work / training requirements

  • In-kind instead of cash

Outside Option#

reduce attractiveness of welfare by improving outside option (e.g wage niveau)

Methods:

  • training

  • minimum wage

  • labor market subsidies

  • subsidize child care

  • force alimony payments (Unterhaltszahlungen für Alleinerziehende)

Universal Basic Income#

Idea: every individual receives regular transfer payment

Advantages:

  • eliminate poverty

  • no tax on labor income

Disadvantage:

  • reduce work trough income effect

  • expensive

Empirical Results (Finland)

  • only for unemployed

  • small / no employment change

  • Higher Satisfaction

  • happiness up