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Wage Subsidies and Labour Supply

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Questions and Answers

What is the primary reason why a shortage of hours worked is associated with transitory income?

Because it is associated with low wage rates
Because it is a type of demographic grant
Because it is a permanent type of income
Because it is related to the loss of transitory income (correct)

What is the effect of a lump-sum demogrant on work incentives?

It has a mixed effect on work incentives
It increases work incentives
It reduces work incentives due to a pure leisure-inducing income effect (correct)
It has no effect on work incentives

What is the primary reason why welfare programs can have an adverse effect on work incentives?

Because they provide a guaranteed income
Because they are administered by the federal government
Because they have a 100% clawback on earned income (correct)
Because they are only available to certain demographic groups

What is the purpose of a negative income tax?

To provide a guaranteed income to low-income individuals (C) Signup and view all the answers

What is the effect of a negative income tax on work incentives?

It reduces work incentives due to the implicit tax rate (C) Signup and view all the answers

What is the formula for the negative income tax?

Y = G + (1 - t)E (B) Signup and view all the answers

Which of the following is a possible solution to improve the work incentives of welfare programs?

Reduce the implicit tax rate (C) Signup and view all the answers

What is the primary difference between a lump-sum demogrant and a welfare benefit?

The type of income it is intended to replace (C) Signup and view all the answers

What is the effect of a 100% clawback on earned income on work incentives?

It reduces work incentives (D) Signup and view all the answers

What is the purpose of the Child Tax Credit?

To provide a subsidy to families with children (B) Signup and view all the answers