Working Paper: CEPR ID: DP10710
Authors: Helmuth Cremer; Kerstin Roeder
Abstract: This paper studies the political economy of a basic income (BI) versus a means tested welfare scheme. We show in a very simple setting that if society votes on the type of system, its generosity as well as the ?severity? of means testing (if any), a BI system could only emerge in the political equilibrium under very strong and empirically implausible conditions. Instead, the political process leads to a means tested system. The necessity to draw political support does affect the design of the system, but it only implies that means testing becomes less severe so that benefits are extended also to the middle classes. However, a fully universal system is rejected by a majority.
Keywords: basic income; means testing; political support
JEL Codes: D3; D7; H2; H5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| political process (D72) | means-tested welfare system (I38) |
| political support (D72) | design of welfare systems (I38) |
| political dynamics (D72) | severity of means testing (I38) |
| political pressure (D72) | means testing severity (I38) |
| stigma associated with means-tested systems (I38) | attractiveness of welfare schemes (I38) |
| stigma cost (P22) | political sustainability of means-tested system (H53) |