Public finance Essay Example | Topics and Well Written Essays - 2000 words

Public finance - Essay Example This paper analyzes the possible impact of welfare reform over labor supply incentives. For so many years, the US has been involved in welfare reforms that any dating of the beginning of welfare reforms is irrational. In many ways, the welfare reforms in the past two decades have given rise to labor supply. The life of the people relying on welfare reforms has become more difficult due to the work requirements for welfare recipients, the decline in the real value of welfare benefits, and the sanctions for not complying with the requirements imposed by the state for welfare recipients, such like the work related participation activities held mandatory for the welfare recipients. Due to which, people would be encouraged to opt for being in or entering in to the labor force rather than leaving or applying for the social welfare programs. Such decisions or choices are based on the perceived toughness of the state’s welfare program and thereby, are influenced by the state’s rhetoric in relation to the welfare reform and not just enforced by the requirements of the law of the state. However, the sanctions imposed on the welfare recipients may simply compel them to seek work by throwing them off the welfare rolls. Also, the time limitations of the number of years for which a particular welfare recipient can benefit from the social welfare program may subsequently lift some welfare recipients off the welfare program. ... nalysis, which are: the precise evaluation of response elasticities, comprehensive specification of the distribution of income, as well as some perspective of the social welfare weights. The former two elements are positive and can be determined through thoughtful evidence based analysis. On the other hand, the last element mentioned above is normative and thus, something at which perspectives may differ. Now, we will discuss that how these elements will operate in the structure of earnings and taxation. In relation to labor supply responses, an important distinction lies between the intensive and extensive margins of labor supply. The studies on optimal taxation investigate the outcomes for tax design (Diamond 1980; Saez 2002; Laroque 2005). When the people are permitted to respond to the variations in the tax schedule by selecting to work or not, and how hard to work, then the schedule of optimal tax can vary to a great extent. Particularly, when this choice of employment becomes c omparatively more significant, then the rates of optimal marginal tax can reduce dramatically, even to a negative value, for the people with low earnings capacity. According to Brewer, Saez, and Shephard (2010), an impelling inference is that if the state government commends redistribution then the workers having low income should be given an earnings subsidy since the participation tax rate for low earnings would be negative. Therefore, the extensive model signifies that work contingent credits or earnings subsides, such like the working tax credit or the earned income tax credit, should be the constituent of an optimal tax system, which is in acute contrast to the intensive model. This is among the vital lessons from the new optimal tax design. Due to the large extensive elasticity, the