The Welfare Effects of Asset Means-Testing Income Support

No 8838, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper quantitatively determines the asset limit in income support programs which minimizes consumption volatility in a lifecycle model with incomplete markets and idiosyncratic earnings risk. An asset limit allows allocating transfers to those households with the highest utility gains from extra consumption. Moreover, it serves as substitute for history and age dependent taxation. However, a low limit provides incentives for high school dropouts to accumulate almost no wealth. Consequently, they miss self-insurance and suffer from high consumption volatility. For an unborn, these effects are optimally traded-off with an asset limit of $145000.

Keywords: means-tested programs; public insurance; incomplete markets (search for similar items in EconPapers)
JEL-codes: D91 I38 J26 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2015-02
New Economics Papers: this item is included in nep-dge, nep-ias, nep-pbe and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published - published in: Quantitative Economics, 2021, 12, 217-249

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Journal Article: The welfare effects of asset mean‐testing income support (2021)
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