Policies Flashcards
What is the policy with the largest poverty reduction for kids as of 2019?
EITC- earned income tax credit
What are in-kind programs?
Way to provide gov assistance without directly handing someone cash
Types of in-kind programs:
food stamps (SNAP)
public housing and rental assistance programs e.g. Section 8
What are the sizes of work disincentives inherent to SNAP?
SNAP program:
Eligibility: gross income below 130% of FPL
offers maximum benefit to households based on size, reduces benefit as income accumulates
(30% of income after deductions are applied)
provided on EBT card, can only be spent on approved items
Each dollar earned reduces benefits by 24 cents
(24 not 30 bc earned income gets 20% reduction, 0.80*0.3 = 0.24)
small or moderate, wouldn’t be large effect or no effect
e.g. Moffit: most have found almost no labor supply effects of the food stamp program
even though there might be disincentives, the effect is tiny (due to various deductions/ people who use food stamps are long-term unemployed, would have trouble finding work even without SNAP)
What do section 8 vouchers do? And what is the effect on disincentives?
- Allow recipients to live in PH at/above FMR (fair market rate)
covers FMR - 30% of income
(certs allow them to live at/BELOW FMR)
Effects of disincentives: moderate
e.g. reduction in labor force participation = 6-7%
reduction in employment from randomized housing voucher wait list = 6-7%
What are tax policies that benefit homeowners?
Mortgage Interest Deduction: Homeowners can deduct the interest paid on their mortgage loans (up to a certain limit) from their taxable income. For new mortgages after 2017, this deduction is limited to interest on the first $750,000 of mortgage debt. This deduction reduces the cost of homeownership and can lead to substantial tax savings, particularly in the early years of a mortgage when interest payments are highest.
Property Tax Deduction: Homeowners can deduct state and local property taxes on their federal income tax return, up to a combined limit of $10,000 for state and local taxes (including income and sales taxes) under the Tax Cuts and Jobs Act (TCJA) of 2017. This deduction provides some relief for homeowners in areas with high property taxes.
Above a certain point, those pottery axes can be deduce d
If you sell you house for more you bought it for, if you
Capital Gains Exclusion: When homeowners sell their primary residence, they may exclude up to $250,000 of capital gains ($500,000 for married couples filing jointly) from their taxable income, provided they have lived in the home for at least two out of the five years before the sale. This exclusion can significantly reduce or even eliminate capital gains tax on the sale of a home.
What is the effect of minimum wage considering labor demand elasticity?
The effect of minimum wage on labor markets depends significantly on the labor demand elasticity, which measures how sensitive the quantity of labor demanded is to changes in the wage rate. T
Key factors influencing effect of minimum wage, considering labor demand elasticity, include
- Elasticity of Labor Demand
Elastic Labor Demand: If labor demand is elastic, an increase in the minimum wage leads to a significant reduction in the quantity of labor demanded. Employers may cut jobs, reduce hours, or invest in automation or technology to replace workers.
When the supply is limited
Typically happens in industries where labor is more easily substituted by machines or where the product being produced is highly sensitive to price changes (e.g., low-skill, easily automated jobs).
Inelastic Labor Demand: If labor demand is inelastic,
quantity of labor demanded doesn’t change much if minimum wage increased.
Employers may be willing to pay higher wages without significantly reducing the number of employees. This tends to occur in industries where labor is essential, highly skilled, or difficult to automate, and where demand for the goods or services produced is less sensitive to price changes.
- Industry and Job Type
Low-Skill vs. High-Skill Jobs: Low-skill jobs = labor demand is often more elastic
High-skill jobs, labor demand tends to be more inelastic because these roles often require specialized skills and there are fewer substitutes for human workers.
Labor-Intensive vs. Capital-Intensive Industries: In labor-intensive industries, such as personal services or agriculture, labor demand is more elastic because businesses can often substitute labor with machines or move production to places with lower labor costs.
Capital-intensive industries less affected by minimum wage increases because they rely more on capital and have less flexibility to reduce labor costs quickly.
- Substitution Effect
If labor demand is elastic, an increase in the minimum wage could result in firms substituting labor with technology (automation, robots, or software). For example, fast food restaurants may increase their use of self-order kiosks or mobile apps, reducing the number of workers needed.
If labor demand is inelastic, firms are less likely to substitute labor with technology, and employees will still be hired at the higher wage rate.
In an industry can get rid of workers easily, demand would be elastic
more response, stretchy
as the wage
if elastic, effect on minimum wage would decrease employment more if demand
when the demand for labor is inelastic, the price ceiling doesn’t cause a huge reduction in employment
bc employers can’t respond by cutting workers
if demand was elastic, then employers can respond by cutting workers and doing something else e.g. machinery
What is the effect of rent control?
The effect of rent control refers to the impact that government-imposed limits on the amount landlords can charge for rent have on the rental market, tenants, and landlords. While rent control aims to make housing more affordable, it can have several unintended economic consequences, depending on the specifics of the policy and the broader market context. Here are the primary effects of rent control:
- Reduced Housing Supply
Landlord Incentives: Rent control limits the potential income that landlords can earn from their properties, which can reduce their incentive to invest in maintenance, renovation, or new construction. Over time, this can lead to a deterioration in the quality of rental housing.
Disincentive for New Construction: Developers may be less inclined to build new rental properties in markets with rent control because the future rental income may not justify the investment. This can result in a long-term shortage of rental housing, especially in cities with high demand. - Decrease in Property Maintenance and Quality
Rent control often leads to a decrease in the quality of rental properties. Since landlords are restricted in the rent they can charge, they may be unable or unwilling to maintain or upgrade their properties. This can lead to poorly maintained buildings, reduced amenities, and a decline in the overall housing stock.
Some landlords may try to “skimp” on repairs or upkeep, knowing that their revenue is capped and they cannot raise rents to cover the cost of maintenance. - Increased Demand for Controlled Units
Rent-controlled units are typically much more affordable than market-rate units, which increases their demand. This can lead to long waiting lists and competition among renters for a limited number of units.
In some cases, the mismatch between supply and demand for rent-controlled apartments can create informal “black markets” where tenants sublet or sell their rent-controlled units at higher prices, undermining the goal of affordability. - Market Distortions
Rent control can distort the housing market by preventing prices from adjusting to reflect real market conditions. This can lead to inefficiencies where tenants in rent-controlled apartments might occupy units that are larger or more expensive than they need, while others who might benefit from living in those units (such as lower-income individuals) are priced out of the market.
Rent control can also cause a mismatch in the allocation of housing. Tenants who have lived in a rent-controlled unit for many years may continue to pay below-market rents, creating inefficiency in housing allocation, as they may have better access to housing than those who would be willing to pay more but cannot find available rental units. - Long-Term Rent Increases
In the long run, rent control can lead to an overall reduction in the supply of rental housing, which could cause rents to rise in the uncontrolled parts of the market. With fewer rental properties available, demand for market-rate units increases, potentially driving up rent prices in the non-controlled sectors.
In the absence of new rental construction and with limited turnover in rent-controlled units, the overall stock of rental housing becomes more limited, contributing to long-term price inflation for non-controlled units. - Tenant Benefits and Stability
Affordability: Rent control can provide significant benefits to tenants, particularly those with lower incomes, by providing them with more affordable housing options, especially in cities where housing costs have become prohibitively high.
Stability: Rent control often includes provisions that prevent landlords from evicting tenants without cause or raising rents excessively. This provides tenants with greater housing stability, which is particularly beneficial for low-income families, elderly tenants, and those with long-term housing needs. - Inefficiencies in Housing Market
Reduction in Mobility: Rent control can reduce tenants’ mobility, as they may be reluctant to move due to the low rent they are paying. This can lead to a “lock-in” effect where individuals stay in rent-controlled apartments longer than they would otherwise, which reduces turnover and availability of units for new renters.
Mismatch of Housing Needs: Rent-controlled units may not match tenants’ current housing needs (e.g., a family might stay in a two-bedroom apartment long after their children have moved out because of the lower rent), leading to inefficient housing use. - Redistribution of Welfare
Rent control can be viewed as a form of wealth redistribution. By capping rent prices, the policy transfers some economic benefit from landlords (who would otherwise charge higher rents) to tenants. However, this transfer of wealth can be uneven, as it disproportionately benefits those tenants who are already in rent-controlled apartments, rather than those who are most in need of housing assistance.
The policy may also benefit higher-income tenants who have occupied rent-controlled units for a long time, as they are able to enjoy below-market rent rates despite their ability to pay higher rents. - Impact on Landlords and Investors
Landlords and property owners are directly impacted by rent control, as it limits their ability to raise rents in line with inflation, market conditions, or the increased costs of property maintenance.
In extreme cases, rent control can discourage investment in rental property, as the returns may no longer justify the risks associated with owning and maintaining rental property. This can reduce the overall stock of rental housing available.
Effect of rent control short term vs long-term
Can’t easily get rid of housing so in the short run won’t see much impact at all
Want to limit upkeep to some extent
Long run:
should there be increase in demand, there would be a shortage of housing where many people want to move in but can’t
= housing shortage
might see failure to upkeep units because rent is lower
there won’t be an increase in supply
Effect of mortgage interest rate deduction on housing market
it makes people willing to pay more for housing no matter the price
shift the demand curve up
increase the cost of housing
people either going to buy more houses or bigger houses
Government policy towards owners versus renters
Do we favor homeowners or renters?
we put more resources on homeowners
