An antipoverty program was initially started by the federal government with the aim of providing monthly...

An antipoverty program was initially started by the federal government with the aim of providing monthly cash support to the poor for at least five years. The government has recently reformed the program by limiting the cash support to two years for most of the recipients.

Do you think the reforms have any effect on incentives for working? Explain.

b. Analyze how this change effect the trade-off between equality and efficiency

Expert Solution

a.

Answer: the reform should increase incentives for working.

Explanation: Cash support to poor for long period of time actually creates negative impact to working. They become comfortable with such support and may not search for jobs. If this situation continues for long period of time (such as for 5 years), they may not like working at all. Since the reform is done and the support is extended for short-term only (such as for 2 years), the working would be necessary after such completion. Therefore, there will be working incentives.

b.

There is an inverse relationship between equality and efficiency – if one increases the other decreases. The reform (reducing the support to poor) reduces equality and increases efficiency.

Rahul Sunny answered 2 years ago

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