Workforce or Workfare? The Optimal Use of Work Requirements When Labour is Supplied Along the Extensive Margin

Craig Brett and Laurence M. Jacquet

Photo: Wiley

Published in:

Canadian Journal of Economics, volume 48, issue 5, pp 1855-1882, 2015

Link to paper

Abstract:

This paper explores the use of workfare as part of a tax mix when labour supply responses are along the extensive margin. In an economy where the government has a priori chosen any tax‐and‐benefit schedule, we show that, despite their common goal of providing additional incentives for individuals to enter the labour force, workfare and an earned income tax credit are at odds with each other. We also show that, in the presence of an optimal nonlinear income tax, introducing unproductive workfare is always suboptimal when individuals face the same disutility of being on workfare. When this disutility is heterogeneous, unproductive workfare may be a useful policy tool.

 

Published Sep. 30, 2016 6:17 PM