Thread by @jdcmedlock

This is an interesting paper on the implications of means-testing Norway's Universal Child Allowance
cesifo.org/sites/default/…

They push back on the idea that universal transfers are "wasted" on higher income recipients, by noting that progressive tax brackets share a similar structure (

https://twitter.com/jdcmedlock/status/1301930142436999169

), and noting that the real costs are not nominal expenditures but distortions to incentives

They note that the effect of means-testing the benefit would be to shift marginal tax rates towards the middle of the income distribution (where it phases-out), while increasing the universal payment with taxes would maintain a progressive structure

Given the gendered distribution of income and labor supply elasticities, means-testing would likely have the impact of increasing total deadweight loss relative to a tax financed boost to universal payments

They argue there are 3 social benefits to universalism that means-testing would undermine
1. Avoiding non take-up of benefits
2. Pigouvian subsidy for the reproduction of society
3. Correcting for market failure in credit markets by transferring income earlier in the life cycle

They analyze two potential expansions of the child benefit. Their means-tested benefit reduces poverty more (though the universal one could just be increased to that level to reduce the same amount of poverty) but this was partially offset by a differential impact on labor supply

They suggest that could create a poverty trap, whereas the universal benefit had largely consistent impacts on labor supply across the income distribution. Reminds me of this argument—creating big disincentives to work might alter the politics of poverty

https://twitter.com/besttrousers/status/1283093973922385920

They conclude that the "not giving transfers to high income households" argument misses the point, and redistribution can also be achieved via universal benefits and progressive taxation