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Behavioural and welfare effects of basic income policies: a simulation for European countries

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  • Colombino, Ugo
  • Locatelli, Marilena
  • Narazani, Edlira
  • O'Donoghue, Cathal
  • Shima, Isilda

Abstract

We develop and estimate a microeconometric model of household labour supply in four European countries representative of different economies and welfare policy regimes: Denmark, Italy, Portugal and United Kingdom. We then simulate, under the constraint of constant total net tax revenue, the effects of 10 hypothetical tax-transfer reforms which include various alternative versions of a Basic Income policy. We produce various indexes and criteria according to which the reforms can be ranked. The exercise can be considered as one of empirical optimal taxation, where the optimization problem is solved computationally rather than analytically. As long as the ranking of reforms is done according to welfaristic criteria it turns out that the most successful policies are those involving non means-tested versions of basic income and adopting progressive tax-rules. When other criteria (such as the implied top marginal tax rate or the effect on female labour supply) are also taken into account, the picture changes: universalistic policies remain optimal and feasible in countries like Denmark where female participation rates are very high; instead, in countries with low female participation rates (like Italy) universalistic policies appear to be too costly in terms of implied top marginal tax rates and in terms of adverse effects on female participation, and meanstested policies such as Work-Fare or Negative Income Tax seem more desirable.

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Bibliographic Info

Paper provided by EUROMOD at the Institute for Social and Economic Research in its series EUROMOD Working Papers with number EM5/08.

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Date of creation: 01 Jul 2008
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Publication status: published
Handle: RePEc:ese:emodwp:em5-08

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References

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  1. Rolf Aaberge & Ugo Colombino & Steinar Strøm & Tom Wennemo, 2005. "Joint Labour Supply of Married Couples: Efficiency and Distribution Effects of Tax and Labour Market Reforms," Labor and Demography, EconWPA 0501004, EconWPA.
  2. R. Aaberge & T. Wennemo & U. Colombino, 2008. "Evaluating Alternative Representations of the Choice Sets in Models of Labour Supply," CHILD Working Papers, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY wp20_08, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY.
  3. Ugo Colombino & Rolf Aaberge, 2006. "Designing Optimal Taxes with a Microeconometric Model of Household Labour Supply," CHILD Working Papers, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY wp20_06, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY.
  4. James Meade., . "Agathotopia," Hume Papers, David Hume Institute 16, David Hume Institute.
  5. John Creedy & Guyonne Kalb & Rosanna Scutella, 2003. "Discrete Hours Labour Supply Modelling: Specification, Estimation and Simulation," Melbourne Institute Working Paper Series, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne wp2003n21, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  6. Thomas MaCurdy & David Green & Harry Paarsch, 1990. "Assessing Empirical Approaches for Analyzing Taxes and Labor Supply," Journal of Human Resources, University of Wisconsin Press, vol. 25(3), pages 415-490.
  7. Roed,K. & Strom,S., 1999. "Progressive taxes and the labour market : is the trade-off between equality and efficiency inevitable?," Memorandum, Oslo University, Department of Economics 19/1999, Oslo University, Department of Economics.
  8. Aaberge, Rolf & Dagsvik, John K & Strom, Steinar, 1995. " Labor Supply Responses and Welfare Effects of Tax Reforms," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 97(4), pages 635-59, December.
  9. François Bourguignon & Amadéo Spadaro, 2005. "Microsimulation as a tool for evaluating redistribution policies," PSE Working Papers halshs-00590863, HAL.
  10. Fortin, Bernard & Truchon, Michel & Beausejour, Louis, 1993. "On reforming the welfare system : Workfare meets the negative income tax," Journal of Public Economics, Elsevier, Elsevier, vol. 51(2), pages 119-151, June.
  11. Colombino, Ugo, 1998. "Evaluating the effects of new telephone tariffs on residential users' demand and welfare. A model for Italy," Information Economics and Policy, Elsevier, Elsevier, vol. 10(3), pages 283-303, September.
  12. Blundell, Richard & Macurdy, Thomas, 1999. "Labor supply: A review of alternative approaches," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 27, pages 1559-1695 Elsevier.
  13. Rolf Aaberge & Ugo Colombino & Steinar Strøm, 2004. "Do more equal slices shrink the cake? An empirical investigation of tax-transfer reform proposals in Italy," Journal of Population Economics, Springer, Springer, vol. 17(4), pages 767-785, December.
  14. Rolf Aaberge, 2006. "Gini’s Nuclear Family," Discussion Papers, Research Department of Statistics Norway 491, Research Department of Statistics Norway.
  15. Herwig Immervoll & Henrik Jacobsen Kleven & Claus Thustrup Kreiner & Emmanuel Saez, 2005. "Welfare Reform in European Countries: A Microsimulation Analysis," OECD Social, Employment and Migration Working Papers 28, OECD Publishing.
  16. Tuomala, Matti, 1990. "Optimal Income Tax and Redistribution," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198286059, October.
  17. Bourguignon, F. & O'Donoghue, C. & Sastre-Descals, J. & Spadara, A. & Utili, F., 1997. "Eur3: A Prototype European Tax-Benefit Model," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 9723, Faculty of Economics, University of Cambridge.
  18. Arthur van Soest, 1995. "Structural Models of Family Labor Supply: A Discrete Choice Approach," Journal of Human Resources, University of Wisconsin Press, vol. 30(1), pages 63-88.
  19. Ugo Colombino & Steinar Strøm & Rolf Aaberge, 2000. "Labor supply responses and welfare effects from replacing current tax rules by a flat tax: Empirical evidence from Italy, Norway and Sweden," Journal of Population Economics, Springer, Springer, vol. 13(4), pages 595-621.
  20. repec:fth:stanho:e-90-11 is not listed on IDEAS
  21. Meade,James Edward, 1995. "Full Employment Regained?," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521556972.
  22. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521296762.
  23. Duncan, Alan & Giles, Christopher, 1996. "Labour Supply Incentives and Recent Family Credit Reforms," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 106(434), pages 142-55, January.
  24. Aaberge, Rolf & Colombino, Ugo & Strom, Steinar, 1999. "Labour Supply in Italy: An Empirical Analysis of Joint Household Decisions, with Taxes and Quantity Constraints," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 14(4), pages 403-22, July-Aug..
  25. Ricardo Varsano & Kevin Kim & Michael Keen, 2006. "The "Flat Tax(es)"," IMF Working Papers 06/218, International Monetary Fund.
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Cited by:
  1. Herwig Immervoll & Cathal O'Donoghue, 2009. "Towards a multi-purpose framework for tax-benefit microsimulation: lessons from EUROMOD," International Journal of Microsimulation, Interational Microsimulation Association, vol. 2(2), pages 43-54.
  2. Aaberge Rolf & Colombino Ugo, 2010. "Using a microeconometric model of household labour supply to design opimal income taxes," Department of Economics and Statistics Cognetti de Martiis. Working Papers, University of Turin 201016, University of Turin.
  3. Isilda Mara & Edlira Narazani, 2011. "Labour-incentive reforms at preretirement age in Austria," Empirica, Springer, Springer, vol. 38(4), pages 481-510, November.
  4. Ugo Colombino & Marilena Locatelli, 2008. "Parameters Heterogeneity in a Model of Labour Supply: Exploring the Performance of Mixed Logit," CHILD Working Papers, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY wp21_08, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY.

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