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

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  • Colombino Ugo

    (University of Torino and Collegio Carlo Alberto)

  • Locatelli Marilena

    (University of Torino)

  • Narazani Edlira

    (University of Torino)

  • O'Donoghue Cathal

    (Rural Economy Research Centre)

Abstract

We develop and estimate a microeconometric model of household labour supply in four European countries with differing 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-reform basic-income policies: Guaranteed Minimum Income, Work Fare, Participation Basic Income and Universal Basic Income. We produce indexes and criteria by which the reforms can be ranked and compared to 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. Many versions of basic income policies would be superior to the current system, and the most successful are not means-tested (Universal or Participation Basic Income) and adopt progressive tax rules. If constraints other than fiscal neutrality are considered, such as the implied top marginal tax rate or the effect on female labour supply, the picture changes: unconditional policies remain optimal and feasible in Denmark and the United Kingdom; while in Italy and Portugal universal policies appear instead to be too costly in implied top marginal tax rates and adverse effects on female participation conditional policies such as Work Fare emerge as more desirable there.

Suggested Citation

  • Colombino Ugo & Locatelli Marilena & Narazani Edlira & O'Donoghue Cathal, 2010. "Alternative Basic Income Mechanisms: An Evaluation Exercise With a Microeconometric Model," Basic Income Studies, De Gruyter, vol. 5(1), pages 1-31, September.
  • Handle: RePEc:bpj:bistud:v:5:y:2010:i:1:n:3
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    Cited by:

    1. Ugo Colombino, 2015. "Five Crossroads on the Way to Basic Income. An Italian Tour," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), pages 353-389.
    2. M. Fort & N. Schneeweis & R. Winter-Ebmer, 2011. "More Schooling, More Children: Compulsory Schooling Reforms and Fertility in Europe," Working Papers wp787, Dipartimento Scienze Economiche, Universita' di Bologna.
    3. Honkanen Pertti, 2014. "Basic Income and Negative Income Tax: A Comparison with a Simulation Model," Basic Income Studies, De Gruyter, pages 119-135.
    4. Colombino Ugo & Narazani Edlira, 2013. "Designing a Universal Income Support Mechanism for Italy: An Exploratory Tour," Basic Income Studies, De Gruyter, pages 1-17.
    5. Colombino Ugo & Narazani Edlira, 2013. "Designing a Universal Income Support Mechanism for Italy: An Exploratory Tour," Basic Income Studies, De Gruyter, pages 1-17.
    6. Colombino, Ugo, 2012. "Equilibrium Simulation with Microeconometric Models: A New Procedure with an Application to Income Support Policies," IZA Discussion Papers 6679, Institute for the Study of Labor (IZA).
    7. Islam, Nizamul & Colombino, Ugo, 2017. "The Case for NIT+FT in Europe: An Empirical Optimal Taxation Exercise," IZA Discussion Papers 11147, Institute for the Study of Labor (IZA).
    8. Ugo Colombine, 2013. "A new equilibrium simulation procedure with discrete choice models," International Journal of Microsimulation, International Microsimulation Association, vol. 6(3), pages 25-49.
    9. Mideros Andrés & O’Donoghue Cathal, 2015. "The Effect of Unconditional Cash Transfers on Adult Labour Supply: A Unitary Discrete Choice Model for the Case of Ecuador," Basic Income Studies, De Gruyter, pages 225-255.
    10. Colombino, Ugo & Narazani, Edlira, 2014. "Closing the Gender Gap: Gender Based Taxation, Wage Subsidies or Basic Income?," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201412, University of Turin.
    11. Holly Sutherland & Francesco Figari, 2013. "EUROMOD: the European Union tax-benefit microsimulation model," International Journal of Microsimulation, International Microsimulation Association, vol. 1(6), pages 4-26.
    12. Herwig Immervoll, 2003. "The Distribution Of Average And Marginal Effective Tax Rates In European Union Member States," Public Economics 0302005, EconWPA.
    13. Ugo Colombino, 2011. "Five issues in the design of income support mechanisms. The case of Italy," CHILD Working Papers wp21_11, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY.
    14. Robin Jessen & Davud Rostam-Afschar & Viktor Steiner, 2017. "Getting the Poor to Work: Three Welfare-Increasing Reforms for a Busy Germany," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, pages 1-41.
    15. Colombino, Ugo, 2010. "Equilibrium Policy Simulations with Random Utility Models of Labour Supply," IZA Discussion Papers 5262, Institute for the Study of Labor (IZA).
    16. Edlira Narazani, 2011. "Evidences on Household Labour Supply when Labour Demand is not Perfectly Elastic Keywords: Labour Supply, Labour Demand, Equilibrium," CHILD Working Papers wp22_11, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY.
    17. Rolf Aaberge & Ugo Colombino, 2011. "Empirical Optimal Income Taxation: A Microeconometric Application to Norway," CHILD Working Papers wp16_11, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY.
    18. Colombino Ugo, 2012. "A microeconometric-computational approach to empirical optimal taxation: outline of a project," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201218, University of Turin.
    19. Colombino Ugo & Narazani Edlira, 2012. "What’s Best for Women: Gender Based Taxation, Wage Subsidies or Basic Income?"," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201212, University of Turin.
    20. Kristian Orsini & Amadéo Spadaro, 2005. "Sharing resources within the household: a multi-country microsimulation analysis of the determinants of intrahousehold "strategic weight" differentials and their distributional outcomes," PSE Working Papers halshs-00590860, HAL.
    21. Mideros Andrés & O’Donoghue Cathal, 2015. "The Effect of Unconditional Cash Transfers on Adult Labour Supply: A Unitary Discrete Choice Model for the Case of Ecuador," Basic Income Studies, De Gruyter, pages 225-255.

    More about this item

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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