A relatively high base income in a cash assistance program

Question

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A relatively high base income in a cash assistance program reduces the incentive to work because individuals may be less motivated to work if they can receive a similar income without working. This is known as the income effect. Additionally, individuals may also be deterred from working because the cash assistance program may reduce their eligibility for other benefits, such as subsidized housing or food stamps, which operate as a high effective tax rate. This is known as the substitution effect. Therefore, overall, the incentive to work is reduced when the base income in a cash assistance program is high.

A Relatively High Base Income in a Cash Assistance Program