Abstract
This paper studies the optimal income redistribution and optimal monitoring when disability benefits are intended for disabled people but some of the disabled do not claim disability benefits and enter the labor force. Classification errors also occur. Some able applicants with high distaste for work are falsely granted disability benefits (type II errors) and some disabled applicants are denied disability benefits (type I errors). The accuracy of monitoring depends on the resources devoted to it. Labor supply responses are at the extensive margin. The paper derives the optimal income tax-transfer schedule that incorporates welfare and disability benefits and takes into account monitoring costs. The cost of monitoring and the co-existence of welfare and disability benefits play in favor of Earned Income Tax Credits for disabled workers who forgo disability benefits as well as for disabled workers who forgo welfare assistance.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.