Work Incentives

Neoclassically-informed economic models - which held sway over policymaking for at least the last 50 years - operate on the assumption that raising taxes discourages work, as do unconditional cash transfers.

As a result, policy approaches such as raising marginal tax rates on the wealthy are quickly dismissed by economists, under the reasoning that doing so would discourage their work, and hurt growth overall. Similarly, cash transfer programs have been tied to work requirements in order to mitigate the risk of discouraging work.

These assumptions have always been sites of theoretical contestation from heterodox economics, but recently, empirical evidence is mounting against these long-held assumptions. Especially around unconditional cash transfers, case studies are finding that they either have no effect on work, or even stimulate economic activity by reducing the risks to entrepreneurship.