Abstract
This paper outlines the conceptual framework of a theory of subsidisation by adapting optimal taxation theory, identifying the appropriate policy maker's welfare functions, and reviewing the uneasy relationship between politics and economics in controlling the distribution of income, information and authority. Introducing involuntary unemployment as an inferior good, new light is shed on the work-leisure choice in social security. Furthermore, it is shown how arguments of altruism and political imposition may be built into traditional welfare functions and how, under the Rule of Law, we are bound to overshoot our targets in the management of entitlements. [/p]
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