Working Paper: CEPR ID: DP16996
Authors: Nir Jaimovich; Itay Saporta-Eksten; Ofer Setty; Yaniv Yedid-Levi
Abstract: We consider the aggregate and distributional impact of Universal Basic Income (UBI). We develop a model to study a wide range of UBI programs and financing schemes and to highlight the key mechanisms behind their impact. The most crucial channel is the rise in distortionary taxation (required to fund UBI) on labor force participation. Second in importance is the decline in self-insurance due to the insurance UBI provides, resulting in lower aggregate capital. Third, UBI creates a positive income effect lowering labor force participation. Alternative tax-transfer schemes mitigate the impact on labor force participation and the cost of UBI.
Keywords: Universal Basic Income; Labor Force Participation; Inequality
JEL Codes: E2; E6; J8
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| universal basic income (UBI) (J65) | decline in labor force participation (J21) |
| distortionary taxation (H31) | decline in labor force participation (J21) |
| universal basic income (UBI) (J65) | decline in aggregate capital (E22) |
| universal basic income (UBI) (J65) | decline in overall economic output (F44) |
| distortionary taxation (H31) | decline in overall economic output (F44) |
| universal basic income (UBI) (J65) | reduced demand for self-insurance through savings (G52) |
| reduced demand for self-insurance through savings (G52) | decline in aggregate capital (E22) |