The welfare effects of asset mean-testing income support Articles uri icon

publication date

  • January 2021

start page

  • 217

end page

  • 249

issue

  • 1

volume

  • 12

International Standard Serial Number (ISSN)

  • 1759-7323

Electronic International Standard Serial Number (EISSN)

  • 1759-7331

abstract

  • This paper studies the savings and employment effects of the asset means‐test in US income support programs using a structural life-cycle model with productivity, disability, and unemployment risk. An asset means‐test incentivizes low-income households to hold few financial assets making them vulnerable to predictable and unpredictable income changes. Moreover, it incentivizes relatively productive households that happen to have few financial assets to leave the labor force. However, it allows for relative generous transfers to households in most need. Moreover, it counteracts relatively productive households leaving the labor force after the age of 50. In terms of the welfare of an unborn household, the asset means-test that optimally trades off these effects is $150,000, and abolishing it is close to optimal.

subjects

  • Economics

keywords

  • means-tested programs; public insurance; incomplete markets