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 a result, policy approaches such as unconditional cash transfers to low-income citizens, or raising marginal tax rates on the wealthy are quickly dismissed by economists, under the reasoning that unconditional cash and higher taxes both reduce work incentives.

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.