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The Targeting of Social Security: a Tax Reform Approach

Jean Hindriks ()

Discussion Papers from University of Exeter, Department of Economics

Abstract: Income-based targeting (or means-testing) reduces social security benefits as income rises. This form of targeting entails a well-known incentive distortion; the prospect for the recipients of losing part of their benefits if they were to earn more can deter them to work harder. In this paper, we argue that targeting is more than a simple redistribution device that takes from the rich to give to the poor. The question involves starting from a particular tax-transfer scheme in force, and asking whether everybody would like to depart from it. Adopting a general environment, we derive simple conditions under which there exist such directions of change and we identify these directions. Specializing further the model and using numerical calculations we estimate the effects of inequality and tax evasion on the desirability of targeting.

Keywords: SOCIAL SECURITY; TAXATION; TESTING (search for similar items in EconPapers)
JEL-codes: H21 H26 H53 (search for similar items in EconPapers)
Date: 1999
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Working Paper: The Targeting of Social Security: A Tax Reform Approach (1994)
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