Means-testing in income redistribution programs can create perverse incentives. This means that the structure of the...
Means-testing in income redistribution programs can create perverse incentives. This means that the structure of the program:
A. makes income distribution worse rather than better.
B. reduces income mobility, particularly between generations.
C. induces people to do things that are inefficient.
D. induces people to do things that are not equitable.
Homework Answers
Answer
A. Makes income distribution worse rather than better.
Recipients whose income is means-tested lose out on a portion of their income. This is similar to taxing a high tax for a certain income tax bracket. This often increaes disposable income among various tax categories and increaing income distribution among the population.
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the answer above is wrong. CORRECT ANSWER: C- induces people to do things that are inefficient.
Explanation
This means that the structure of the program induces recipients to do things that are economically inefficent. For example, people may choose to work fewer hours because if they work more, their benefits will be reduced.
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