Question

1. How Will We Pay For All The Coronavirus Relief?

2.Describe how the moral hazard associated with welfare benefits can be reduced, and tell what other problems this creates.

Answer 1

1. The Coronavirus relief may be funded from following sources-

A. Increasing tariffs on imports- This will help generate additional resources for the government to fund the healthcare costs.

B. Increasing insurance premium rates- The insurance companies may be funded by increasing the premium rates as they have to reimburse the hospital bills for a large number of people.

C. Increasing personal taxation- marginal increases in personal taxation may help to fund the healthcare costs without hurting the individual taxpayers much.

D. Covid-19 taxation on IT companies- online service providers have gained both traffic and revenue during covid-19, so they can be asked to pay more taxes to fund the healthcare costs of the same.

2. The moral hazard of welfare payments can be reduced through measues such as-

A. Announcing that all welfare payments would be treated as loans given by the government to help needy citizens and they have to be repaid when the payee finds employment.

B. Requiring payees to engage in works related to mass sanitization or other such activities in lieu of such payments.

However, moral hazard may create other problems such as unwillingness to work even if the work is available and the person is fit. This is due to complacency effect.

This also creates a perception that the government is misutilizing hard earned taxpayer money on callous citizens.