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Efficient redistribution: Comparing basic income with unemployment benefit

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  • FitzRoy, Felix
  • Jin, Jim
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    Abstract

    Given a general utility function and income distribution, we compare two systems of income redistribution: unemployment benefits (UB) conditional on not working and basic income (BI) available to everyone. Based on strong empirical evidence we first focus on extensive margins of labor supply. For any given unemployment level, lowering UB and raising BI always benefits the unemployed, raises utilitarian welfare and benefits a poor majority. Reducing unemployment and UB simultaneously can benefit a majority of the employed as well as all unemployed. Similar results hold even if we allow involuntary unemployment or intensive margins. --

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    Bibliographic Info

    Paper provided by Hamburg Institute of International Economics (HWWI) in its series HWWI Research Papers with number 107.

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    Date of creation: 2011
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    Handle: RePEc:zbw:hwwirp:107

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    Keywords: basic income; unemployment benefits; extensive margins;

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    1. Richard W. Blundell, 1995. "The Impact of Taxation on Labour Force Participation and Labour Supply," OECD Jobs Study Working Papers, OECD Publishing 8, OECD Publishing.
    2. N. Gregory Mankiw & Matthew Weinzierl & Danny Yagan, 2009. "Optimal Taxation in Theory and Practice," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 23(4), pages 147-74, Fall.
    3. Phillippe Choné & Guy Laroque, 2008. "Optimal taxation in the extensive model," IFS Working Papers, Institute for Fiscal Studies W08/08, Institute for Fiscal Studies.
    4. Immervoll, Herwig & Kleven, Henrik Jacobsen & Kreiner, Claus Thustrup & Saez, Emmanuel, 2005. "Welfare Reform in European Countries: A Microsimulation Analysis," IZA Discussion Papers 1810, Institute for the Study of Labor (IZA).
    5. Pissarides, Christopher A., 1998. "The impact of employment tax cuts on unemployment and wages; The role of unemployment benefits and tax structure," European Economic Review, Elsevier, Elsevier, vol. 42(1), pages 155-183, January.
    6. Philippe Chone & Guy Laroque, 2001. "Optimal Incentives for Labor Force Participation," Working Papers, Centre de Recherche en Economie et Statistique 2001-26, Centre de Recherche en Economie et Statistique.
    7. Nada Eissa & Jeffrey B. Liebman, 1995. "Labor Supply Response to the Earned Income Tax Credit," NBER Working Papers 5158, National Bureau of Economic Research, Inc.
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