IDEAS home Printed from https://ideas.repec.org/p/snu/ioerwp/no141.html
   My bibliography  Save this paper

Negative Income Tax and Universal Basic Income in the Eyes of Aiyagari

Author

Listed:
  • Yongsung Chang
  • Jong-Suk Han
  • Sun-Bin Kim

Abstract

We compare two redistribution programs - negative income tax (NIT) and universal basic income (UBI) - through the lens of Aiyagari (1994), a standard heterogeneous agent general equilibrium model. Mankiw (2020) proposes an example where an NIT and a UBI appear identical. We show that while Mankiw's example provides identical economic incentives to individual workers, the size of the government vastly differs. According to our quantitative analysis designed to replicate Mankiw's example, the UBI requires a program budget that is 15% of GDP, whereas the NIT requires 3.8% of GDP. Nevertheless, neither redistribution program significantly improves social welfare in the long run because of the reduction in capital and labor - via (i) tax distortion and (ii) a weak motive for precautionary saving and working.

Suggested Citation

  • Yongsung Chang & Jong-Suk Han & Sun-Bin Kim, 2021. "Negative Income Tax and Universal Basic Income in the Eyes of Aiyagari," Working Paper Series no141, Institute of Economic Research, Seoul National University.
    • Handle: RePEc:snu:ioerwp:no141
    as

    Download full text from publisher

    File URL: https://ier.snu.ac.kr/activity/working-papers?md=view&seqidx=64
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    Redistribution; Negative Income Tax; Universal Basic Income; Government Budget;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:snu:ioerwp:no141. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Hojung Lee (email available below). General contact details of provider: https://edirc.repec.org/data/iesnukr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.