Welfare, Cash Grants, and Marginal Rates

28 Pages Posted: 25 Apr 2006

See all articles by Daniel Shaviro

Daniel Shaviro

New York University School of Law


Marginal rates are frequently analyzed based solely on taxes, without regard to benefit phase-outs that have exactly the same incentive and distributional effects as increasing positive taxes. This myopia reflects the notion, rooted in our current fiscal language, that "taxes" and "spending" are fundamentally different. In fact, however, the difference is purely one of labeling.

Among the ill consequences of this confusion between substance and labels is the political unfeasibility of demogrant or negative income tax proposals. These proposals often are criticized for seemingly providing universal and unconditional cash grants. In fact, however, cash grants can be just as conditional or selective as benefits that are labeled as "welfare." Clearer thinking about these matters would expand the realm of politically feasible policy choices, and make excessively high marginal tax rates on people who are escaping poverty easier to avoid.

Keywords: marginal rates, welfare, demogrants, negative income tax

JEL Classification: H20, H21, H24, I38

Suggested Citation

Shaviro, Daniel, Welfare, Cash Grants, and Marginal Rates. Southern Methodist University Law Review, Forthcoming; NYU, Law and Economics Research Paper No. 06-21. Available at SSRN: https://ssrn.com/abstract=898692

Daniel Shaviro (Contact Author)

New York University School of Law ( email )

40 Washington Square South
Room 314-B
New York, NY 10012-1099
United States
212-998-6187 (Phone)
212-995-4341 (Fax)

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