ABSTRACT
This chapter reviews the general case for income testing of benefits. It suggests that the use of a continuum of in-kind benefits and that the dichotomy between cash and services is a stylized simplification of a more complex reality. By implication, the different types of in-kind benefits require different intellectual justifications. The strongest general case in favor of income testing is equity. The main problem is that any given income-tested program adds to both the marginal and the cumulative tax rates, thus creating, in principle, problems of work incentives and a sense of unfairness. The choice of a measure of inequality is particularly important because it implies a model of equality. The chapter addresses the income-tested housing allowances in Sweden and Denmark. It also reviews the important variations in universal programs. A number of empirical studies in the public sector have shown that the recipients of in-kind benefits value these benefits at less than the cost to the provider.
