ON REFORMING THE WELFARE SYSTEM - WORKFARE MEETS THE NEGATIVE INCOME-TAX

Using a simulation model for a small open economy (Quebec 1986), vario us Negative Income Tax (NIT) and workfare schemes are compared from th e point of view of efficiency and equity. The main finding is that the re exist workfare schemes that are superior both to the Quebec regime of 1986, and to a NIT characterized by a 100 percent implicit tax rate . However, these workfare schemes are dominated by some NIT programs. This suggests that it may be necessary to have work requirements that vary across socio-demographic classes for a workfare plan to be superi or to any NIT. Combining workfare with an NIT could also be the prescr iption.