Principles of Economics by Gregory Mankiw

Principles of Economics by Gregory Mankiw

Author:Gregory Mankiw [Mankiw, Gregory]
Language: zho
Format: epub
ISBN: 9788131503126
Publisher: Thomson Southwestern
Published: 2007-03-14T16:00:00+00:00


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welfare

government programs that supplement the incomes of the needy

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A common criticism of welfare programs is that they create incentives for people to become “needy.” For example, these programs may encourage families to break up, for many families qualify for financial assistance only if the father is absent. The programs may also encourage illegitimate births, for many poor, single women qualify for assistance only if they have children. Because poor, single mothers are such a large part of the poverty problem and because welfare programs seem to raise the number of poor, single mothers, critics of the welfare system assert that these policies exacerbate the very problems they are supposed to cure. As a result of these arguments, the welfare system was revised in a 1996 law that limited the amount of time recipients could stay on welfare.

How severe are these potential problems with the welfare system? No one knows for sure. Proponents of the welfare system point out that being a poor, single mother on welfare is a difficult existence at best, and they are skeptical that many people would be encouraged to pursue such a life if it were not thrust upon them. Moreover, trends over time do not support the view that the decline of the two- parent family is largely a symptom of the welfare system, as the system’s critics sometimes claim. Since the early 1970s, welfare benefits (adjusted for inflation) have declined, yet the percentage of children living with only one parent has risen.

NEGATIVE INCOME TAX

Whenever the government chooses a system to collect taxes, it affects the distribution of income. This is clearly true in the case of a progressive income tax, whereby high-income families pay a larger percentage of their income in taxes than do low-income families. As we discussed in Chapter 12, equity across income groups is an important criterion in the design of a tax system.

Many economists have advocated supplementing the income of the poor using a negative income tax. According to this policy, every family would report its income to the government. High-income families would pay a tax based on their incomes. Low-income families would receive a subsidy. In other words, they would “pay” a “negative tax.”



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