Homework answers / question archive / In "The Iron Triangle" There is no way to reform a simple cash welfare program (like that used here) to simultaneously achieve three goals: (1) encourage work, (2) redistribute income, and (3) lower costs

In "The Iron Triangle" There is no way to reform a simple cash welfare program (like that used here) to simultaneously achieve three goals: (1) encourage work, (2) redistribute income, and (3) lower costs

Economics

Share With

In "The Iron Triangle" There is no way to reform a simple cash welfare

program (like that used here) to simultaneously achieve three goals: (1) encourage work, (2) redistribute income, and (3) lower costs. In such a system, the government has two tools at its disposal: the level of the benefit guarantee (G ) and the benefit reduction rate (t). There is no change in these two parameters that can achieve all three of these goals. As we showed,


1) if the government lowers the benefit reduction rate for a given guarantee level, it doesn't necessarily encourage work or lower costs.
2) If the government reduces the guarantee for a given benefit reduction rate, it will definitely encourage work and lower costs, but it will lower the amount of income redistribution (because the poor will receive less in a system with a lower guarantee).
3) If the government raises the guarantee, it will definitely increase income redistribution, but it will discourage work and increase costs