A Quantitative Evaluation of Universal Basic Income
15:30-17:00, Friday, May 13, 2022
Tencent Meeting (Meeting ID: 908 370 306)
We provide a quantitative evaluation of the impact of Universal Basic Income (UBI) on macroeconomic aggregates, welfare and redistribution, exploring different levels of UBI generosity, paired with different strategies to finance it. We find a welfare loss for all levels of UBI if financing schemes involve income taxes. A common channel for the welfare loss is the negative redistribution by small UBI and the efficiency loss associated with generous UBI due to its discouragement in labor supply. Learning by doing further deteriorates welfare results because the lowered human capital caused by less labor supply translates to even more efficiency loss. In contrast, financing UBI with consumption taxes exclusively is the least distortionary way. Providing UBI up to $24,640 per year per household improves the ex-ante expected welfare for both low and high skilled newborn households. During the transition of the optimal reform, roughly only 7% of the current population benefits and almost all of them are low skilled.
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