2023 Fiscal Year Annual Research Report
Optimal in-kind benefits in means-tested programs
| Project/Area Number |
20K01676
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| Research Institution | National Graduate Institute for Policy Studies |
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Principal Investigator |
Porapakkarm P. 政策研究大学院大学, 政策研究科, 教授 (10751266)
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| Project Period (FY) |
2020-04-01 – 2024-03-31
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| Keywords | in-kind transfer / home production / optimal taxation |
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| Outline of Annual Research Achievements |
We investigate whether welfare benefits should be provided in-kind or in-cash. While an in-kind transfer can be attractive only to its targeted low-income beneficiaries, this argument is weakened in a means-tested welfare program since means-testing already serves as a screening tool. We examine whether we can rationalize an in-kind benefit when means-testing is already in place?
We characterize the optimal allocations when a social planner does not observe individuals’ productivity and designs an allocation scheme based on individual’s self-report productivity. A solution is that individuals reporting low productivity should have their leisure overprovided and consumption goods under-provided. Our study extends this finding in a framework where individuals derive utility from several consumption goods, some of which are produced at home, i.e., they require both time and input goods purchased from markets. Our results show that since individuals can reallocate the over-provided leisure time to home production activities, high and low productive individuals value input goods for home production differently. This allows the social planner to refine its allocation scheme to better target low productive individuals.
We show that the implementation can be simplified using an in-kind transfer. Since high-productivity individuals can meet means-testing requirement by working less. To reduce attractiveness of this strategy, certain distortions on consumption choices should be put in place. In-kind provision can simplify the implementation of these distortions.
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