The Korean Economic Review
Income Assistance and Aggregate Disposable Income
Illoong Kwon (Seoul National University)Year 2024Vol. 40No. 1
This paper provides a simple theoretical model to analyze how income assistance affects the aggregate disposable income of recipients when a government cannot observe the recipients’ earning capabilities. If the recipients’ earning capabilities are uniformly distributed, means-tested linear income assistance benefits do not affect their aggregate disposable income, regardless of the size or reduction rates of the distributed benefits. Under a realistic distribution of earning capabilities, their aggregate disposable income can even decrease.