Assume no Washington income tax, and Washington has a $4M grant to spend. Zoe Wu tells the mayor that a means-tested program would allow the poor to get more money. She suggests that benefits should be redunced by $10 for each $100 in workers’ pre-tax income. Suppose the guarantee rate is G. How much benefit would each group get at their original income (working 40 weeks) in terms of G? 2 2. With the $4M grant, how large can G be? How much benefit does each group get? What is the maximum income in the phase-out region?
Question 1
Assume no Washington income tax, and Washington has a $4M grant to spend. Zoe Wu tells the mayor that a means-tested program would allow the poor to get more money. She suggests that benefits should be redunced by $10 for each $100 in workers’ pre-tax income.
- Suppose the guarantee rate is G. How much benefit would each group get at their original income (working 40 weeks) in terms of G?
2 2. With the $4M grant, how large can G be? How much benefit does each group get? What is the maximum income in the phase-out region?
- Draw the benefit schedule with labels.
- Suppose the government could identify workers’ type and sent them money equal to your answer in part (b), regardless of their labor supply choice.
(a) What is the percentage change in workers’ wealth, the dollar value of their time plus unearned income?
(b) How many weeks per year would each type work using the elasticity of η = −0.1? Compare your answer to 4(d). Explain why they are similar or different.
- C) estimate the additional effect of benefit phase-out (the tax) for those who recieve benefits using the elasticity of ε u = 0.3. What is the total number of weeks worked by each type?
Question 2
- Give an assessment of the Wu and Tang plans. Compare the plans’ effectiveness in combatting poverty?
Assess the degree to which ignoring incentives would generate a budget shortfall under each plan. Explain to Mayor Rita, Zoe, and Andrew the pros and cons of each.
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