Econ for public policy week 4

means tested benefits and alleviating poverty

means tested benefits

benefits that are available to households on low income when their income rises the benefits decline

• unemployment benefit (out of work benefits)

• income support (in-work benefits)

• housing benefits, disability benefits, etc

means-tested benefits are:

• good at targeting low income households

• but they provide a disincentive to work (moral hazard problem)

Types of means-tested benefits

means-tested benefits

• eligibility criteria and phase in range: provides incentives to meet criteria

• phase out range: provides disincentives to increase income over some range

out of work benefits

• eligibility criteria provides disincentives for work

• phase out if you get work gives disincentives for work

in work benefits

• eligibility criteria give incentives to work

• phase out range gives disincentives for increased work or wages over some range

in-work benefits (welfare to work)

In-work tax credits and other welfare to work benefits

• grew in popularity worldwide during the late 1990s and 2000s as a means of reforming welfare systems in ways that could potentially both encourage work and reduce poverty.

government has three potentially conflicting aims

• raising the living standards of those on low incomes

• encouraging work and economic self-suffciency

• spending government funds effectively

for low income/low educated households, low hourly wages provide incentives for work

• in-work benefits increase incentives to enter into work

• if experience leads to increased productivity and so increased wages then should lead to economic self-sufficiency

in-work tax credit basic features (working tax credit (WTC))

1. there is an hours of work condition

• minimum of 16 hours

• rate increases at 30 hours

2. family eligiblity

• amount you get depends on number of children in family

3. income eligibility

• based on family net income

• amount you get is tapered away at a rate that varies (around 50-

70%)