Optimal universal and categorical benefit provision with classification errors and imperfect enforcement

Sean Slack, David Ulph

    Research output: Contribution to journalArticlepeer-review

    1 Citation (Scopus)

    Abstract

    We determine the optimal combination of a universal benefit and categorical benefit when individuals differ in their ability to work and, if able to work, their productivity. The categorical benefit is conditioned ex ante on applicants being unable to work and ex post on recipients not working. The awards test makes Type I/II errors. If the ex post condition is (i) not enforced the optimal categorical benefit is positive only if the awards test has discriminatory power, whilst maximum welfare falls with both error propensities; but if (ii) fully enforced the optimal categorical benefit is positive always and maximum welfare can increase with the Type II error propensity.
    Original languageEnglish
    Pages (from-to)289-311
    Number of pages23
    JournalJournal of Public Economic Theory
    Volume19
    Issue number2
    Early online date12 Aug 2016
    DOIs
    Publication statusPublished - Apr 2017

    Keywords

    • Categorical benefit
    • Classification errors
    • Universal benefit
    • Taxation

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