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Alternative Basic Income Mechanisms: An Evaluation Exercise with a Microeconometric Model

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  • Ugo Colombino

    ()

  • Marilena Locatelli

    ()

  • Edlira Narazani
  • Cathal O’Donoghue

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 the United Kingdom. We then simulate, under the constraint of constant total net tax revenue (fiscal neutrality), the effects of various hypothetical tax-transfer reforms which include alternative versions of a Basic Income policy: Guaranteed Minimum Income, Work Fare, Participation Basic Income and Universal Basic Income. We produce indexes and criteria according to which the reforms can be ranked and compared to the current tax-transfer systems. The exercise can be considered as one of empirical optimal taxation, where the optimization problem is solved computationally rather than analytically. It turns out that many versions of the Basic Income policies would be superior to the current system. The most successful policies are those involving non means-tested versions of basic income (Universal or Participation Basic Income) and adopting progressive tax-rules. If – besides the fiscal neutrality constraint – also other constraints are considered, such as the implied top marginal top tax rate or the effect on female labour supply, the picture changes: unconditional policies remain optimal and feasible in Denmark and the UK; instead in Italy and Portugal universal policies appear to be too costly in terms of implied top marginal tax rates and in terms of adverse effects on female participation, and conditional policies such as Work-Fare, emerge as more desirable.

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Bibliographic Info

Paper provided by CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY in its series CHILD Working Papers with number wp04_10.

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Length: 30 pages
Date of creation: Feb 2010
Date of revision:
Handle: RePEc:wpc:wplist:wp04_10

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Keywords: Minimum Guaranteed Income; Work Fare; Participation Basic Income; Universal Basic Income; Models of Labour Supply; Tax Reforms; Welfare Evaluation; Optimal Taxation;

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  1. John Creedy & Guyonne Kalb, 2005. "Discrete Hours Labour Supply Modelling: Specification, Estimation and Simulation," Journal of Economic Surveys, Wiley Blackwell, vol. 19(5), pages 697-734, December.
  2. Rolf Aaberge & Ugo Colombino, 2006. "Designing Optimal Taxes with a Microeconometric Model of Household Labour Supply," Discussion Papers 475, Research Department of Statistics Norway.
  3. Immervoll, Herwig & Kleven, Henrik & Kreiner, Claus Thustrup & Saez, Emmanuel, 2004. "Welfare Reform in European Countries: A Micro-Simulation Analysis," CEPR Discussion Papers 4324, C.E.P.R. Discussion Papers.
  4. Ugo Colombino & R. Aaberge & T. Wennemo, 2006. "Evaluating Alternative Representations of the Choice Sets in Models of Labour Supply," CHILD Working Papers wp17_06, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY.
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  6. Richard Blundell & Mike Brewer & Peter Haan & Andrew Shephard, 2009. "Optimal Income Taxation of Lone Mothers: An Empirical Comparison of the UK and Germany," Economic Journal, Royal Economic Society, vol. 119(535), pages F101-F121, 02.
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  14. Fortin, Bernard & Truchon, Michel & Beausejour, Louis, 1993. "On reforming the welfare system : Workfare meets the negative income tax," Journal of Public Economics, Elsevier, vol. 51(2), pages 119-151, June.
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  17. McFadden, Daniel, 1974. "The measurement of urban travel demand," Journal of Public Economics, Elsevier, vol. 3(4), pages 303-328, November.
  18. 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., vol. 14(4), pages 403-22, July-Aug..
  19. 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, vol. 10(3), pages 283-303, September.
  20. Rolf Aaberge, 2007. "Gini’s nuclear family," Journal of Economic Inequality, Springer, vol. 5(3), pages 305-322, December.
  21. Sen, Amartya, 1974. "Informational bases of alternative welfare approaches : Aggregation and income distribution," Journal of Public Economics, Elsevier, vol. 3(4), pages 387-403, November.
  22. Ricardo Varsano & Kevin Kim & Michael Keen, 2006. "The "Flat Tax(es)"," IMF Working Papers 06/218, International Monetary Fund.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Basic income vs capitalism
    by chris dillow in Stumbling and Mumbling on 2013-07-02 13:34:26
  2. Why not a basic income?
    by chris dillow in Stumbling and Mumbling on 2013-10-16 11:50:15
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