Rethinking the welfare state

Guner, Nezih and Kaygusuz, Remzi and Ventura, Gustavo (2023) Rethinking the welfare state. Econometrica, 91 (6). pp. 2261-2294. ISSN 0012-9682 (Print) 1468-0262 (Online)

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The United States spends significant amounts on non-medical transfers for its working-age population in a wide range of programs that support low- and middle-income households. How valuable are these programs for U.S. households? Are there simpler, welfare-improving ways to transfer resources that are supported by a majority? What are the macroeconomic effects of such alternatives? We answer these questions in an equilibrium, life-cycle model with single and married households who face idiosyncratic productivity risk, in the presence of costly children and potential skill losses of females associated with non-participation. Our findings show that a potential revenue-neutral elimination of the welfare state generates large welfare losses in the aggregate, although most households support the move as losses are concentrated among a small group. We find that a Universal Basic Income program does not improve upon the current system. If, instead, per-person transfers are implemented alongside a proportional tax, a Negative Income Tax experiment, it becomes feasible to improve upon the current system. Providing per-person transfers to all households is costly, and reducing tax distortions helps to provide for resources to expand redistribution.
Item Type: Article
Uncontrolled Keywords: household labor supply; income risk; social insurance; Taxes and transfers; universal basic income
Divisions: Faculty of Arts and Social Sciences > Academic programs > Economics
Faculty of Arts and Social Sciences
Depositing User: Remzi Kaygusuz
Date Deposited: 06 Feb 2024 23:09
Last Modified: 06 Feb 2024 23:09

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