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