overview of income redistribution programs n.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
Overview of Income Redistribution Programs PowerPoint Presentation
Download Presentation
Overview of Income Redistribution Programs

Loading in 2 Seconds...

play fullscreen
1 / 24

Overview of Income Redistribution Programs - PowerPoint PPT Presentation


  • 133 Views
  • Uploaded on

Overview of Income Redistribution Programs. Federal government plays large role redistributing income and supporting income of various groups Programs decrease uncertainty generated by market economy 2 broad categories of social insurance/redistribution programs. Programs.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Overview of Income Redistribution Programs' - louisa


Download Now An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
overview of income redistribution programs
Overview of Income Redistribution Programs
  • Federal government plays large role redistributing income and supporting income of various groups
  • Programs decrease uncertainty generated by market economy
  • 2 broad categories of social insurance/redistribution programs
programs
Programs
  • Means Tested Programs
    • Programs directed at those falling below predetermined income or asset level - poverty programs
    • Examples: medicaid, food stamps (SNAP), TANF
  • Non-means Tested Programs
    • Eligibility for program not determined by income means test
    • Other criteria (for example age) establish eligibility; most people fall under program at some point
    • Examples: unemployment insurance, social security pension system, medicare

Non-means tested programs much larger than means tested programs

poverty in us
Poverty in US
  • Families and individuals classified as poor if their incomes fall under a calculated poverty threshold
  • Threshold varies by family characteristics, (family size etc)
  • Threshold constructed as function of income needed to maintain adequate diet; Assumed families spend 1/3 of income on food
poverty
Poverty

2012 poverty threshold

  • In 2012, 15.0% of the population under poverty line
  • Only cash income (regardless of source) is used to establish poverty status
  • Poverty has fallen in US since first calculated
    • in 1959 the poverty rate was 22.4%
    • In 2007 (pre-recession) poverty rate was 12.5%
anti poverty programs
Anti-poverty Programs

Means tested programs can be split into:

  • Cash transfer programs
    • Earned Income Tax Credit (EITC)
    • Temporary Assistance to Needy Families (TANF)
    • Supplemental Security Income (SSI)
  • In-kind programs (direct provision of goods/services by government)
    • Medicaid
    • Food Stamps (SNAP)
    • Housing Assistance
earned income tax credit
Earned Income Tax Credit
  • Second largest federal anti-poverty program after medicaid
  • Program began in 1970’s, greatly expanded in 1993
  • Program directed at working poor, only those earning wages are eligible
  • EITC is a system of direct income subsidies administered thru the tax system
slide7
EITC

Assume a single woman with one child in 2003 with

$15,600 adjusted gross income

-7000 standard deduction (head of household)

-6,200 exemptions (herself and child)

-----------------------------------------------------------------------

$2,400 taxable income

        • $240 tax owed before EITC
      • Value of EITC subsidy - $2,248
      • The woman would pay no income taxes and receive a $2008 refund ($2248-$240)
  • Roughly 21 million families received EITC refunds in 2004
  • The 36 billion in refunds lifted 5 million families above the poverty line in 2004
temporary assistance to needy families tanf
Temporary Assistance to Needy Families (TANF)
  • In 1996, TANF replaced the federal entitlement program called Aid to Families with Dependent Children (AFDC)
  • Directed at non-working families with children
  • The old AFDC program consisted mainly of cash subsidies in which
      • The federal government would determine eligibility
      • States would determine size of cash benefits
slide9
TANF

TANF is a federal program directed at same group as AFDC

  • States now have almost complete discretion over who receives benefits and the form of benefits
  • Generally fewer strings created by federal government but recipients are allowed federally subsidized cash benefits for a maximum of 5 years. States had option of lowering this limit.
  • The number of people within TANF fell compared to the program it replaced (AFDC)
in kind anti poverty programs
In Kind Anti-poverty Programs
  • Medicaid
    • Single largest anti-poverty program
    • Medical insurance provided by federal government for those who pass means test
    • Cost of program is shared with states and program is administered by individual states
    • Most families with incomes below 130% of poverty level will qualify
  • Food Stamp Program (now SNAP)
    • Begun in 1971
  • Housing Assistance
anti poverty programs1
Anti-poverty Programs
  • Cash benefit anti-poverty programs make up small percentage of federal expenditures
  • In kind benefits for poor much larger than cash benefits
  • Over half of federal anti-poverty expenditures are in Medicaid
    • Medicaid larger than all cash benefits programs combined
the economics of income redistribution
The Economics of Income Redistribution

Moral Hazard

  • Redistributing income from one group to another may change the behavior of both groups
  • This change in behavior increases uncertainty regarding the governmental cost of the program; may also give rise to unanticipated changes in total output in economy
moral hazard
Moral Hazard
  • Assume taxes increased for one group to redistribute income to another, this may reduce work effort for those whose taxes increased
  • The redistribution of income may also affect the work incentive of those receiving the subsidy
the economics of income redistribution1
The Economics of Income Redistribution

Assumptions for simple model:

  • One wage earner per household
  • Worker’s wage is $12.50/hour
  • Wage earner can work a maximum of 2000 hours per year (8 hours a day times 5 days a week times 50 weeks a year)
  • Wage earner able to choose between work hours and leisuretime
the economics of income redistribution2
The Economics of Income Redistribution

Income Subsidy

  • Assume a program that guarantees a minimum income ($9,000) to each American family
  • Every family that earns an income below $9,000 receives subsidy to bring income up to $9,000 level
  • Every dollar that a family earns below $9,000 means one less dollar in subsidy (a family with an earned income of $5,000 will get a subsidy of $4,000; a family with an earned income of $5,001 will receive $3,999)
the economics of income redistribution3
The Economics of Income Redistribution

Families with earned income over $9,000 receive no subsidy

Program effectively amounts to a 100% tax for those with earned incomes below $9,000.

the economics of income redistribution4
The Economics of Income Redistribution
  • In redistributing income, want to target those subsidy recipients who
    • have low incomes due to low capacity to earn income in labor market
    • not those who have high ability to earn but choose to consume more leisure time
    • therefore, will not change their behavior in the labor market due to the subsidy
the economics of income redistribution5
The Economics of Income Redistribution

Example of a target group for income distribution

Single mothers

  • Poverty rate for families headed by single woman is almost 3 times the national average
  • Little evidence that people become single mothers due to income subsidies
the economics of income redistribution6
The Economics of Income Redistribution
  • Redistribution programs may attempt to distinguish between those with low earnings capacity and those who value leisure by setting making program unattractive for recipients
  • Ordeal mechanism: only those who are truly less capable of earning in the labor market will suffer ordeal in subsidy program.

Work and Training requirements that are part of TANF programs in many states

Eligibility requirements in SNAP

the economics of income redistribution7
The Economics of Income Redistribution
  • Economic theory suggests cash subsidies in some cases are a more efficient method than in-kind programs to redistribute income
  • If in-kind benefits do not dramatically alter the choices open to a recipient, compared to an equivalent cash subsidy, it may be more efficient to provide cash

Example: Food Vouchers