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Work Incentives

Neoclassically-informed economic models — which held sway over policymaking for at least the last 50 years — operate on the assumption that raising taxes discourages work.

As a result, policy approaches such as unconditional cash transfers to low-income citizens, or raising marginal tax rates on the wealthy are quickly dismissed by economists, under the reasoning that unconditional cash and higher taxes both reduce work incentives.

These assumptions have always been sites of theoretical contestation from heterodox economics, but recently, empirical evidence is mounting against these long-held assumptions. Especially around unconditional cash transfers, case studies are finding that they either have no effect on work, or even stimulate economic activity by reducing the risks to entrepreneurship.
A study of an Iranian cash transfer program that covered over 70 million people, and paid out the equivalent of $16,390 per family in its first year, found that “the program did not affect labor supply in any appreciable way.” If redistribution does not discourage work, then NIT-style programs better optimize social welfare functions relative to to EITC-style ones. Among new mothers who received an unconditional $333 per month, there was no decrease in employment, no increase in alcohol or tobacco use, more time spent in early-learning activities, and an increase in consumption of child-specific goods. “ We re-analyze the data from seven randomized controlled trials of government-run cash transfer programs in six developing countries throughout the world, and find no systematic evidence that cash transfer programs discourage work.” If redistributive programs do not discourage work, then guaranteed income paired with high phaseout rates optimizes social welfare functions A $1,000 increase in average CTC is associated with a 1.1% increase in labor force participation of single mothers
Underreporting and Experimental Effects on Work Effort: Evidence from the Gary Income Maintenance Experiment. Systematic Misreporting and Effects of Income Maintenance Experiments on Work Effort: Evidence from the Seattle-Denver Experiment. NIT Picking: The macroeconomic effects of a negative income tax Could we end poverty in a postindustrial society? The case for a progressive negative income tax. Expanding the Discourse on Antipoverty Policy: Reconsidering a Negative Income Tax Basic Income & the Right to Work: A Keynesian Approach
John Friedman Robert Moffitt David Greenberg Harlan Halsey Martin Lopez-Daneri Jeff Manza Fred Block Luke Shaefer
Basic Income Social Wealth Fund
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