Public Pensions, Income Assistance, and Education Flashcards

Comprehensive vocabulary flashcards covering public pension pillars, income assistance formulas, and economic theories of education based on the lecture notes.

OAS

Old Age Security, which provides income for seniors aged $65+$.

CPP/QPP

Canada Pension Plan and Quebec Pension Plan; compulsory programs where benefits depend partly on earnings and are inflation-indexed and taxable.

Private savings/pensions

The third retirement-income pillar in Canada, consisting of vehicles like RPP, RRSP, and TFSA.

Adverse selection (annuities)

The problem where people expecting to live longer are more likely to buy annuities, causing prices to rise; mandatory public pensions help mitigate this.

Paternalism

The argument that the government should force people to save enough for their own retirement.

Redistribution

The goal of providing income to individuals who are unable to save enough on their own.

Miscalculation

The concept that planning for retirement is difficult, justifying the need for public pension systems.

Samaritan's dilemma

A situation where individuals save less in the present because they expect to receive future support from others/government.

Inflation protection

A benefit of public pensions that ensures the purchasing power of retirement income remains stable despite price increases.

PAYG (Pay-As-You-Go)

A pension system structure where current workers fund the benefits of current retirees.

Fully funded

A pension system where contributions are accumulated over time to fund future benefits for the contributors.

PAYG benefit formula

The formula $B = t \times (\frac{N_w}{N_b}) \times w$ where $B$ is benefit, $t$ is tax rate, $N_w$ is workers, $N_b$ is beneficiaries, and $w$ is average wage.

Life-cycle model

The theory that people smooth consumption over their life by saving when income is high and borrowing or using savings when income is low.

Wealth substitution effect

The tendency for private saving to decrease when expected public pensions increase, potentially lowering total saving and investment.

Retirement effect

The tendency for people to save more because they plan to retire earlier.

Bequest effect

The tendency for people to save more in order to leave money to their children.

GIS

Guaranteed Income Supplement, which provides extra support for low-income seniors.

Allowance

A support payment for qualifying spouses or widows/widowers aged $60-64$.

Base CPP

The portion of the Canada Pension Plan that is operated on a PAYG (Pay-As-You-Go) basis.

Additional CPP

The portion of the CPP that is fully funded rather than PAYG.

D-E-B-D

The acronym for reasons CPP contribution rates increased: Demographics, Economics/productivity, Benefit enrichment, and Disability claims.

Intergenerational equity

The concept of fairness between generations, specifically how PAYG gave earlier generations higher rates of return than later generations.

Social insurance

Compulsory contribution programs designed to protect individuals against adverse events.

Income assistance (IA)

Tax-funded redistribution provided to people with little or no income.

Funder of last resort

The principle that IA is intended only for people with almost no other income, assets, or support.

DA (Disability Assistance)

One of the two broad income assistance categories in British Columbia, specifically for those with disabilities.

TA (Temporary Assistance)

One of the two broad income assistance categories in British Columbia, providing short-term support.

Main IA benefit formula

The formula $B = \text{Max}(B) - NE$ where $B$ is the benefit, $\text{Max}(B)$ is the maximum benefit, and $NE$ is non-exempt income.

Non-exempt income (NE) formula

The formula $NE = (Y_e - D_e - E_e) + (Y_o - D_o - R_o)$, calculating income that reduces IA benefits.

Simplified IA formula

The formula $B = \text{Max}(B) - tY_e$ where $t$ is the benefit reduction rate and $Y_e$ is earnings.

Benefit reduction rate ($t$)

The rate at which IA benefits decrease as earnings increase; a higher $t$ lowers program costs but reduces work incentives.

Welfare wall

A situation where earning more income causes a loss of IA benefits and services, which can discourage work.

Work formula

The labor supply relationship represented as $\text{Work} = T - L$ where $T$ is total time and $L$ is leisure.

Income formula (labor)

The income relationship represented as $\text{Income} = w(T - L)$ where $w$ is the wage.

Earnings exemptions

Provisions that allow IA recipients to earn a certain amount of income before their benefits begin to decrease.

Supplements

Payments designed to reward employment, such as the Canada Workers Benefit (CWB).

CWB

Canada Workers Benefit, which supports low-wage workers.

Basic income

A major alternative to IA that provides a guaranteed minimum cash income to citizens.

Workfare

A system where benefits are conditional on the recipient participating in specific work activities.

Basic services

The provision of in-kind benefits or services instead of cash assistance as an alternative to IA.

E-I-E

The three main reasons for government intervention in education: Externalities, Information/capital-market problems, and Equity.

Positive externality

Occurs in education when the student receives private benefits and society receives external benefits.

SMB formula

Social Marginal Benefit, calculated as $SMB = PMB + EMB$ where $PMB$ is private marginal benefit and $EMB$ is external marginal benefit.

Market education level

The quantity of education produced where private marginal benefit equals private marginal cost, or $PMB = PMC$.

Efficient education level

The quantity of education where social marginal benefit equals private marginal cost, or $SMB = PMC$.

EMB formula

External Marginal Benefit, calculated as $EMB = SMB - PMB$.

Optimal education subsidy

A subsidy conceptually equal to the $EMB$ that shifts the education level toward the efficient quantity.

Education information problem

The issue where parents or students lack sufficient information to make informed educational decisions.

Imperfect capital-market problem

The condition where students cannot easily borrow against future earnings, leading to underinvestment in education.

Education signaling

A theory where employers use an applicant's education level as a proxy for their unobservable productivity or ability.

H and L types

In signaling models, $H$ represents high-productivity workers with wage $w_H$, and $L$ represents low-productivity workers with wage $w_L$.

Wage gain (signaling)

The financial benefit of signaling high productivity, calculated as $w_H - w_L$.

School voucher

A policy that allows students to choose their school; its trade-off involves potential improved outcomes via competition versus increased inequity.

Standardized testing

A tool for accountability and monitoring in schools that carries the risk of schools 'teaching to the test' while neglecting other skills.