Principles of Economics- Mankiw (5th) 443

Principles of Economics- Mankiw (5th) 443 - CHAPTER 20...

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CHAPTER 20 INCOME INEQUALITY AND POVERTY 455 misfortune, they are in the best position to decide how to raise their own living standards. Rather than giving the poor in-kind transfers of goods and services that they may not want, it may be better to give them cash and allow them to buy what they think they need most. ANTIPOVERTY PROGRAMS AND WORK INCENTIVES Many policies aimed at helping the poor can have the unintended effect of dis- couraging the poor from escaping poverty on their own. To see why, consider the following example. Suppose that a family needs an income of $15,000 to maintain a reasonable standard of living. And suppose that, out of concern for the poor, the government promises to guarantee every family that income. Whatever a family earns, the government makes up the difference between that income and $15,000. What effect would you expect this policy to have? The incentive effects of this policy are obvious: Any person who would make under $15,000 by working has no incentive to find and keep a job. For every dollar
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