[Excerpt] In this paper we have set down a moderately rigorous exposition of the use of conventional economic analysis for the purpose of estimating the work (dis)incentives resulting from the institution of various income maintenance schemes. Most of the analysis is couched in terms of simplified versions of the Family Assistance Plan (FAP), a variant of a negative income tax, and a wage subsidy program. Our intent is to set out the conventional theory of labor supply in an easily understood way, to show how this theory may be helpful in the examination of an issue of importance to public policy, and to survey the available empirical literature for reasonable estimates of the parameters necessary for implementation of the theory.
What we will do in the sequel is perfectly conventional. The only wrinkles are that we will try to simplify and verbalize the analysis often, and we will try to integrate various income maintenance schemes into the analysis to see what implications are provided regarding work (dis)incentives from them. There are accordingly three parts to the paper: Part I is a strictly verbal discussion of everything that follows. Part II is a more conventional discussion with some mathematics. Part III is a review of much of the empirical work currently available. Our discussion throughout draws heavily on two previous papers.