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Optimality of workfare with heterogeneous preferences

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  • Katherine Cuff

Abstract

With the standard non-linear income taxation framework with heterogeneity of preferences, in this paper the optimality of workfare as a screening tool is examined. It is assumed that workfare does not serve as a human capital investment, participation is mandatory, and administrative costs are negligible. Imposing alternative cardinalizations on individuals utilities allows for the possibility that the government optimally redistributes income to or from high disutility of labour individuals. Under either case, it is never optimal to impose workfare on these individuals. It is also shown that non-productive workfare can be an efficient policy tool, in contrast to the results found in Besley and Coate (1995), Brett (1998), and Beaudry and Blackorby (1997).

Suggested Citation

  • Katherine Cuff, 2000. "Optimality of workfare with heterogeneous preferences," Canadian Journal of Economics, Canadian Economics Association, vol. 33(1), pages 149-174, February.
    • Handle: RePEc:cje:issued:v:33:y:2000:i:1:p:149-174
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    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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