Answer to Question #236343 in Macroeconomics for smur

Question

A 1996 bill reforming the federal government’s anti-poverty programs limited many welfare recipients to only two years of benefits. a. How does this change affect the incentives for working? b. How might this change represent a trade-off between equality and efficiency?

Answer 1

(a) The federal bill to reform antipoverty programs limiting the welfare recipients to only two years of benefits decreases the incentive to leisure and increases the incentive to work. Thus it creates pressure on the beneficiaries to search job in the mean time.

(b) This change might represent a trade-off between equality and efficiency due to the fact that it increases efficiency at the cost of equality. The temporary nature of the benefits creates pressure for the beneficiaries to search job.