Chap013.7 - Slide 40 Methods of Income Redistribution The...

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7 Chapter 13: Labor Markets, Poverty, and Income Distribution Slide 37 Methods of Income Redistribution ± Means-Tested Benefit Programs z Benefit level declines as the recipient earns additional income z May make people better off if they do not work z Costly to administer Chapter 13: Labor Markets, Poverty, and Income Distribution Slide 38 Methods of Income Redistribution ± The Negative Income Tax (NIT) z Every person would receive a tax credit. z A person with no income would receive the credit in cash. z People who earn income would receive the tax credit and pay taxes on their income at less than 100%. Chapter 13: Labor Markets, Poverty, and Income Distribution Slide 39 Methods of Income Redistribution ± The Negative Income Tax (NIT) z Advantages ² Incentive to work ² Lower administrative cost Chapter 13: Labor Markets, Poverty, and Income Distribution
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Unformatted text preview: Slide 40 Methods of Income Redistribution The Negative Income Tax (NIT) z An Example Poverty threshold in 2001 = $18,000 for a family of four living in a city. Assume the NIT credit = $18,000. Eight families pool their payments ($144,000) and move to a rural location and produce their own food. Chapter 13: Labor Markets, Poverty, and Income Distribution Slide 41 Methods of Income Redistribution The Negative Income Tax (NIT) z An Example Creates and incentive not to work. The political cost is high because the NIT guarantees income to all who do not work. Chapter 13: Labor Markets, Poverty, and Income Distribution Slide 42 W L L 1 W min Unemployment The Effect of Minimum Wage Legislation on Employment Employment Wage ($/hour) S D...
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