Sunday 18 December 2011
3 comments:
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The negative income tax is brilliant. However, won't it incentivize business owners/managers to keep labor wages at the lowest level possible, if business owners know that the government will compensate for the rest?
ReplyDelete-Derek-
No because employers have little economic incentive to take an interest in the absolute level of a worker's income*, but they do have a strong interest in the comparative level of a worker's income. The over-riding incentive for a business to keep wages low (or high) is competition - regardless of what the government does in respect of welfare.
ReplyDelete*Where an employer has workers who have this or that problem, then if anything the employer is more likely to help the worker with loans or whatever - but this will tend to be motivated by a sense of charity rather than any structural economic incentive (unless it be that this particular worker is hard to replace).
The main problem with the negative income tax is that, like the systems it was intended to replace, it requires a bureaucracy to administer it - which is expensive and will likely lead to fraud and so on. The other thing is trying to introduce it unalloyed to other solutions whose effect would be to merely move the problem sideways. The negative income tax was only supposed to be a stop-gap measure toward the abolition of the welfare state.
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