Rethinking the Welfare State

Nezih Guner, Remzi Kaygusuz and Gustavo Ventura

No 16275, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The U.S. spends non trivially on non-medical transfers for its working-age population in a wide range of programs that support low and middle-income households. How valuable are these programs for U.S. households? Are there simpler, welfare-improving ways to transfer resources that are supported by a majority? Quantitatively, what are the macroeconomic effects of such alternatives? We answer these questions in an equilibrium, life-cycle model with single and married households who face idiosyncratic productivity risk, in the presence of costly children and potential skill losses of females associated with non-participation. Our findings show that a potential revenue-neutral elimination of the welfare state generates large welfare losses in the aggregate. Yet, most households support eliminating current transfers since losses are concentrated among a small group. We find that a Universal Basic Income program does not improve upon the current system. If instead per-person transfers are implemented alongside a proportional tax, a Negative Income Tax experiment, there are transfer levels and associated tax rates that improve upon the current system. Providing per-person transfers to all households is quite costly, and reducing tax distortions helps to provide for additional resources to expand redistribution.

Keywords: Taxes and transfers; Household labor supply; Income risk; Negative income tax (search for similar items in EconPapers)
JEL-codes: E62 H24 H31 (search for similar items in EconPapers)
Date: 2021-06
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Related works:
Journal Article: Rethinking the Welfare State (2023)
Working Paper: Rethinking the Welfare State (2023)
Working Paper: Rethinking the Welfare State (2023)
Working Paper: Rethinking the Welfare State (2021)
Working Paper: Rethinking the Welfare State (2019)
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