Very unfavorable.

Economists have frequently argued that a negative income tax would be an improvement on the motley of programs that have been used to redistribute income.13 In the U.S., an NIT received support from a wide spectrum of economists, was given serious consideration by high ranking members of the Johnson administration, and came very close to being enacted in the form of Nixon's Family Assistance Plan. But it seems that the NIT has fallen out of favor with both politicos and economists. One explanation for its present status could be its work disincentive; FAP drew a great deal of criticism and invective for guaranteeing an income to the “"indolent and malingering.'' Our analysis shows that under majority rule, the work disincentive from negative income taxation could be an impediment to its adoption.

When government spending is high, it is possible that the electorate would support a proportional income tax over a tax that provides for cash transfers to low income households. A simple computational model indicated that with per capita government spending at 20% of average household income, roughly the current level of U.S. government spending, a majority of households may prefer a proportional tax to a linear income tax that provides for income transfers.14

On the other hand, we also found that the work disincentive of a negative income tax may cause a majority of the electorate to prefer public provision of a good or an in-kind transfer to a cash transfer. This result offers a very nice and intuitive explanation for the myriad of government programs that provide goods and services to households in lieu of cash payments. Of course, this study focuses on narrowly defined self-interest as the motivation for sup- porting cash transfers. That is, the effect of altruism on the willingness of households to support such transfers is not considered here. So, the promi- nance of cash transfers to specific demographic groups in the social security systems of European countries may be the consequence of ""tagging'' by elec- torates who are more altruistic than the U.S. electorate. It is well known that if electorates are willing to pay taxes to improve the welfare of certain demo- graphic groups, then a negative income tax with tagging would be superior to cash transfers based solely on income (Akerlof 1978).

To us, the lesson to be taken from our analysis is that, despite its merits, the negative income tax may not be a viable approach to fighting poverty and inequality. Our study confirms that the work disincentive of a negative income tax could be an obstacle to its adoption. What it underscores then is that a hodge-podge of conditional cash transfers, public provision of private goods, in-kind transfers, and subsidies may be all that can be done to improve the welfare of low income households.