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The Design of Income Maintenance Programmes

Timothy Besley and Stephen Coate
The Review of Economic Studies
Vol. 62, No. 2 (Apr., 1995), pp. 187-221
Published by: Oxford University Press
Stable URL: http://www.jstor.org/stable/2297802
Page Count: 35
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The Design of Income Maintenance Programmes
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Abstract

This paper provides a comprehensive treatment of a basic income maintenance problem for a group of individuals who differ in their income generating abilities. It stresses the impact that imperfect information about such abilities has on programme design. The analysis serves two purposes. First, we are able to unify the theoretical literature on the income maintenance problem. Second, we examine the impact of allowing the government to impose workfare on recipients of income support. In addition to being of policy interest, this is a theoretically challenging problem since it requires solving a multi-dimensional screening problem. The solution that we find is strikingly simple. It separates the poor into two categories, with the lower income groups subject to workfare while facing a 100$\tt\%$ marginal tax rate on earnings. The second group does no public work and is offered a benefit schedule which taxes earnings at a lower rate.

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