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An Analysis of Benefit Flows in New Zealand Using a Social Accounting Framework WP 13/01

Appendix F. Benefit Costs per Period

The accounting framework can be extended to cover the costs associated with the stocks and flows. Suppose the payment received by individuals in state j in period t is denoted, Equation. . In view of the role of income-testing in New Zealand, the existence of some differences in earnings within some benefit categories means that a precise cost per period cannot be given. The term Equation. can therefore be regarded as an average. However, in view of the definitions of states, the range within any category is small. The total cost of transfers during period t, denoted is thus given by:

Equation.

Furthermore there are administrative costs associated with the flows of individuals through the system. Suppose that the cost per person of dealing with someone moving from state j to state i from period t to t+1 is equal to Equation. . The total administrative cost in period t, denoted Equation. , is thus:

Equation.

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