IN-KIND VERSUS CASH TRANSFERS IN THE PRESENCE OF DISTORTIONARY TAXES |
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Authors: | FIROUZ GAHVARI |
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Abstract: | In-kind transfers can Pareto-dominate cash transfers as a means of income redistribution if in-kind transfers and leisure are Hicks substitutes and leisure is a normal good. The result holds when redistributive instruments also include a linear income tax. The paper proves that if the poor receive more in-kind transfers (and the rich less) than what they would choose for themselves then, compared to cash transfers, there will be a higher labor supply by the poor, a lower labor supply by the rich, and higher levels of aggregate pre-tax income and tax revenues. |
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