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Efficient redistribution: Comparing basic income with unemployment benefit

  • FitzRoy, Felix
  • Jin, Jim
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    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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    File URL: http://econstor.eu/bitstream/10419/48205/1/66375934X.pdf
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    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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    1. Herwig Immervoll & Henrik Jacobsen Kleven & Claus Thustrup Kreiner & Emmanuel Saez, 2007. "Welfare reform in European countries: a microsimulation analysis," Economic Journal, Royal Economic Society, vol. 117(516), pages 1-44, 01.
    2. 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.
    3. N. Gregory Mankiw & Matthew Weinzierl & Danny Yagan, 2009. "Optimal Taxation in Theory and Practice," Journal of Economic Perspectives, American Economic Association, vol. 23(4), pages 147-74, Fall.
    4. Christopher Pissarides, 1997. "The impact of employment tax cuts on unemployment and wages : the role of unemployment benefits and tax structure," LSE Research Online Documents on Economics 2332, London School of Economics and Political Science, LSE Library.
    5. Philippe Chone & Guy Laroque, 2001. "Optimal Incentives for Labor Force Participation," Working Papers 2001-26, Centre de Recherche en Economie et Statistique.
    6. Richard W. Blundell, 1995. "The Impact of Taxation on Labour Force Participation and Labour Supply," OECD Jobs Study Working Papers 8, OECD Publishing.
    7. Choné, Philippe & Laroque, Guy, 2011. "Optimal taxation in the extensive model," Journal of Economic Theory, Elsevier, vol. 146(2), pages 425-453, March.
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