Suppose the government is considering a program to give housing vouchers to poor people. Assume the value of the voucher is greater than the amount currently being spent on housing per month by poor people. The housing voucher will necessarily cause more units of housing to be consumed by poor people, whereas an unrestricted cash subsidy with the same dollar value would not.

Question

Quizplus · Accepted Answer

Since the housing voucher can only be used for housing, it will incentivize poor people to consume more units of housing. On the other hand, an unrestricted cash subsidy could be used for anything and may not necessarily result in an increase in housing consumption. The housing voucher is specific to housing expenses and will incentivize poor people to use it towards housing, therefore increasing the consumption of housing units. An unrestricted cash subsidy can be used for any expenses, not just housing, so it may not necessarily result in an increase in housing consumption.

Suppose the Government Is Considering a Program to Give Housing