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we're here today with Wharton business
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economics and public policy professor
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Benjamin Lockwood to discuss some of his
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recent research Ben thanks for being
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here thanks for having me so first of
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all could you give us a brief summary of
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your research what you were looking at
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sure gladly so um so I my research
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focuses fundamentally on tax policy
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issues of redistribution and rising
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inequality and and so the most recent
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paper that I've been working on this
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involves issues of work subsidies so
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this is a particular kind of
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anti-poverty program where the
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government pays especially low income
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people to work more and these kinds of
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policies are quite widespread they exist
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from the UK to Scandinavia to the to New
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Zealand they exist in the u.s. in the
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form of the Earned Income Tax Credit
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which is an incredibly popular policy on
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both sides of the of the political aisle
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but there's a sort of puzzle in optimal
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tax research because this kind of policy
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is is suboptimal according to standard
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economic models instead you should just
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give people kind of a lump sum and let
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them do choose the amount of work that
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they would like to like to provide so so
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to resolve that puzzle I've essentially
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looked to more recent developments in
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behavioral economics research which
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studies temptation and self-control
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these kinds of issues and one of the
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lessons of that research is that people
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often underestimate benefits when they
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come with a delay and overestimate
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upfront costs so this can explain
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everything from under saving for
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retirement to exercising less than one
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intends to and when you think about it
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labour effort the decision to work often
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often involves those kinds of trade-offs
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you need to put in time at a menial task
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or you need to do do lots of unpleasant
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work work searching for for a new job
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upfront in exchange for the possibility
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of a delayed benefit in the form of a
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pay raise or a promotion so once you
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take that that kind of behavioral bias
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into account these sorts of work
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subsidies can actually make a lot of
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sense so what were some of the key
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takeaways of the paper so I think that
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there are a couple one is that this
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helps us understand why policies like
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the Earned Income Tax Credit might be so
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widespread and so politically popular it
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also helps us understand the kind of
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puzzle
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related to the EITC expansion in the
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1990s so the way that expansion worked
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was to expand work subsidies for for
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primarily for single mothers while at
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the same time reducing unconditional
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welfare welfare grants and and so that
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had the effect of encouraging single
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mothers to enter the workforce which
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they did quite substantially and
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conventional economic theory suggests
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that because it was it was accompanied
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by reductions in other welfare programs
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this should have actually unbalanced
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made single mothers worse off on the
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other hand when you look at subjective
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happiness reports from single mothers
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over this same period you actually see
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that they report being happier over that
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time frame which is consistent with this
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kind of behavioral economic model as
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they gained the benefits of these
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delayed delayed returns to being in the
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labor force and so if I am either a
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policymaker or even just the average
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person what are some of the practical
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implications of these research of this
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research so I think there are a couple
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practical ramifications one is it helps
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us better understand why we have these
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kinds of policies and why they're so
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widespread why people on both sides of
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the political aisle might favor them on
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the other hand it also points to reforms
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that we could potentially make to
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programs like the EITC to actually
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improve them so one type of reform would
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be to expand the program from its
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current more narrow focus on families as
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primarily single mothers with children
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to also expand it to families with it
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without children single men and the like
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because even though because those types
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of workers also faced these delayed
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benefits in exchange for upfront costs
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of work on the other hand it also
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suggests how the structure of the timing
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of EITC benefits could be improved so
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the the EITC has currently paid out as
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one lump sum at the end of the tax year
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and that results there and that results
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in many people taking out loans against
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those anticipated refunds often at very
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high interest rates in excess of one
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hundred and fifty percent at an
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annualized level so by paying out EW I
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see benefits more frequently throughout
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the year we could avoid those kinds of
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high interest loans by providing people
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the liquidity they need more frequently
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now with that also though would you have
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to consider that that is less delayed
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gratification you know
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because they'd be getting it over the
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course the year as opposed to waiting
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till the end yes exactly so in fact
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that's part of the benefit of that sort
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of alternative timing structure if we
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can pay those benefits more frequently
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and closer to the time that the work is
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actually performed then we can help
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mitigate this temptation to to sort of
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sit back and not think as much about
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those delayed benefits because people
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can connect it more directly to yes
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exactly
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and so what is what's next for this
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research what are you going to look at
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value gonna follow this up sure so I
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think there are many different contexts
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where it's helpful to build
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considerations of behavioural temptation
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and self-control into models of optimal
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redistribution so the next project that
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I'm working on along these lines is
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actually looking at sin taxes like this
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more recent soda tax that the city of
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Philadelphia has introduced so there are
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one of the kind of rationales for those
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kinds of policies is that they help
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discourage unhealthy behavior in this
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case consuming sugary beverages
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hopefully then reducing the incidence of
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obesity and diabetes but at the same
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time one caught one perceived cost of
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those policies is that they can tend to
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be really regressive falling heavily on
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poor on lower-income consumers so so
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this more recent research that I'm
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looking at sort of ways those those
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benefits and costs against each other to
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try to find the optimal point and also
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looks at other possible policies like
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making the income tax more progressive
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at the same time as we increase sin
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taxes like like a tax on soda to kind of
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offset those regressivity costs thank
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you so much for being here my pleasure
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[Music]
