Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

3 - Public > 6 - Optimal Design Of Transfers > Flashcards

6 - Optimal Design Of Transfers Flashcards

1
Q

what is the difference between intensive and extensive margin responses

A

intensive = individuals choose how many hours they want to work

extensive = choose whether they want to work or not

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

what does the US do

A
  • rewards low income workers
  • negative MTR = negative phase out = rewards work
  • small lumpsum grant = doesnt really benefit non-workers
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

what is the optimal transfer at bottom if individuals respond to taxes only through intensive margin

A
  • lumpsum grant = -T(0) > 0
  • high MTR = phases out quickly
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

what is the highest phase out rate possible

A
  • a horizontal line = each additional £ of income reduces £ of transfer
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

the shallower the slope means …

A

the higher the phase out rate
- high T’(z) = high MTR
- lower slope = 1-T’(z)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

why are high MTR at the bottom efficient

A
  1. they target the needy - people that need it the most
  2. we know that for below z* higher MTR can disentivise working - but since earnings are low at the bottom to start with it wont generate a huge loss
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

under what conditions will the gov provide higher transfers for low income workers

A
  • when non-workers are seen as less deserving than average workers
  • low lumpsum grant
  • negative MTR = the government will provide a subsidy - pay higher transfers for low income workers than 0 hours
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

when do we give high transfers to non-workers

A

when there is a high lumpsum grant

  • high -T(0)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

if the gov increase the transfer rate what will happen to the slope

A
  • higher transfer = higher phase out rate
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

what are the 3 effects of a government reform on transfers

A
  1. mechanical fiscal cost = dM
  2. welfare effect = dW
  3. fiscal cost = dB
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

what is the mechanical cost?

A

the cost to the government assuming that the individuals dont change their behaviour

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

what is the optimal bottom rate tax formula
- how does dm,dw,db play into this

A

at the optimal when dM + dB + dW = 0

t1 = g0 - 1 / g0 - 1 + eo

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

according to the formula what is the distribution preference when g0 > 1

A
  • big lumpsum grant -T(0)
  • if the transfer is high then tax rate must be high to expense this
  • high phase out rate
  • high t1
  • shallow slope
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

what does g0 > 1 mean

A
  • g0 = the social welfare weight of 0 earners

= we care about 0 earners welfares greater than average

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

according to the formula what is the distribution preference when g0 < 1

A
  • society sees nonworkers as freeloads and nondeserving
  • EITC
  • negative tax rate
  • intercept is close to 0 (no lumpsum grant)
  • incentivise non-workers to work
  • slope greater than 45’
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

under what conditions are in work subsidies optimal

A
  • labour supply responses are concentrated along the extensive margin
  • the gov cares about low income workers = g1>1
17
Q

what is the assumption of the extensive responses model

A

that behavioural responses only take place through the extensive margin

so earnings dont respond to MTRs

18
Q

what is the objective of gov subsidies

A

to incentivise people to work more than the decrease in tax rate will make them want to reduce their hours

  • as long as intensive marginal responses are small - people dont switch from z2 to z1
  • we want to switch to be from z0 to z1
19
Q

why is the extensive reform increase dc1 a win win

A
  1. dM + dW is positive
    - social welfare gain is greater than the fiscal cost
    = positive redistribution effect
  2. there is a tax revenue gain - induces non-workers to start working
20
Q

what is g1

what is g1 > 1

A

the social welfare weight on low-income workers with earnings z1

£1 distributed to low paid workers is valued more than £1 distributed to all

21
Q

when is the optimal bottom rate formula satisfied
when g1>1

and what is the equation

A

dM + dB + dW = 0

t1 = 1-g1 / 1-g1+e1

22
Q

why is it better to have a larger transfer to only z1 than to those with 0 income

A
  • 0 income will distrot z2 incentives
  • we dont want higher types to move down
  • grants = distort behaviour of all people on extensive margin
23
Q

summary

what is graph if
g1 > 1
low income workers more deserving than average

A

EITC
* negative t1
* subsidy
* low phase out rate at the bottom is optimal
* only if labour responses are concentrated along the extensive margin - z2 wont change behaviour

24
Q

summary

what is graph if
g0 > 1
non-workers more deserving than average

A
  • high grant
  • high MTR
  • shallow slope - high phase out rate at bottom
  • no strong response along the extensive margin (dont want people to quit work)
25
Q

summary

what is graph if
g0 < 1
non-workers are less deserving than average = freeloaders

A
  • low grant
  • low phase out rate at the bottom
  • low tax rate
26
Q

what is better
- means tested transfer programs (out of work)
- in work benefits (EITC)

A

in work benefits
- redistribute to low income workers
- improve incentives to work

means tested
- incentivize people it is not aimed at: to not work
- high phase out rates

27
Q

what are other kinds of transfers that are better than means tested cash transfers

  • what are better options than giving low incomers cash
A
  1. tagging
  2. in-kind programs
28
Q

what are the 3 criteria needed for tagging to be successful

A
  1. observable characteristics to the gov
  2. this characteristic is negatively correlated with earnings capacity = makes sure its redistributed to those that need it from high to low ability
  3. immutable = no moral hazard because - no incentive to change characteristics
29
Q

what is tagging

A

targeting benefits to observable individual characteristics
- groups of people that are given special tax schedules

  • disabled, single mum, gender
30
Q

what are in kind transfers

A

transfer of goods or services rather than cash facilitated by a government to its poorer citizens

31
Q

what is the rational individual perspective of in-kind transfers

A

if an in-kind transfer is not tradeable then it is inferior to cash transfers = individuals are worse off because they cant sell

if it is tradeable at market price then equivalent

  • rational perspective = cash transfer is preferred
32
Q
  • why do societies do in-kind redistribution
    (4 and reasons)
A
  1. commodity egalitarianism
    - some goods should be provided to all - human rights (education, health care)
  2. paternalism
    - society imposes its preferences
  3. behavioural
    - government can make better decisions on behalf of them (self control)
  4. efficiency
    - could be efficient if in-kind can prevent those who dont really need the transfer from getting them
33
Q

what are the social perspective justifications as to why in-kind transfers are made instead of cash (preferred)

just list the 4

A
  1. commodity egalitarianism
  2. paternalism
    3.behavioural
  3. efficiency
34
Q

what does the Barr 2022 paper test

A

what are the long run effects of cash transfers for children in low-income families

  • does the additional tax deduction for december born first children over january have a LR effect to the childrens earnings when they are in their 30s
  • december get an extra year of benefits
35
Q

what does the Barr 2022 paper do

A
  • they track the impact of the tax refunds in the first year of newborns life - families get more EITC funds for newborns
  • does this extra refund = mean that firstborns do better off
  • uses IRS tax return data and educational data
  • uses regression discontinuity design at the dec/jan eligibility cutoff to compare first born children in their 30s
36
Q

what does the Barr 2022 paper
find

A
  • December born kids get on average 1300 more than jan
  • transfer in infancy increases young adult earnings
  • december born adults earn 1-2% more than jan
  • december born perform better on maths/reading tests and more likely to graduate
  • large LR effects on earnings means that the transfer pays for itself by creating larger increases in income - and then tax revenue
37
Q

what are the key takeaways from barr 2022

A
  • extra money in early stage life has large long lasting effects
  • increasing transfers = beneficial
  • and will pay for itself since the cost is smaller than future benefits
  • has infinite return
38
Q
A

3 - Public (10 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions