An Unconditional Basic Income in the Family Context - Labor Supply and Distributional Effects

Abstract

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp10091.pdf Non-technical summaryBasic income schemes are discussed among all political parties in Germany. A basic income is a specific form of a guaranteed minimum income for every citizen. Distributed unconditionally it could simplify the current German welfare state by replacing the numerous means-tested welfare transfers. The proposed basic income schemes combine several different instruments like a negative income tax, a flat tax system and lump sum payments for health insurance. The concepts discussed differ in crucial design parameters mainly in the level of guaranteed income.We focus our analysis on the prominent proposal by the conservative party (Christian Democratic Union -CDU). By introducing their proposal of an unconditional basic income, all means-tested social transfers would be replaced by a negative income tax scheme that guarantees every citizen a minimum income, regardless of whether he or she is in work or unemployed. Social security payments would be substituted by a payroll tax for employers and a tax-financed basic pension would replace the current pension scheme. The transfer withdrawal rate would be considerably reduced to 50% and a flat tax rate of 25% is suggested.Our paper analyzes the effects of the proposed basic income reform and two budget-neutral alternatives on labor supply and income distribution. A special focus lies on the work incentives for secondary earners in the family context. We use a detailed microsimulation model for the German tax system to simulate the reform and a structural household labor supply model for the estimations. The analyses are based on the micro data of the German Socio-Economic Panel (GSOEP).Our results show that the originally proposed basic income concept yields a very high deficit. Therefore, we also study two budget neutral alternatives. Introducing the originally proposed reform, our model predicts a large increase of labor supply due to high working incentives caused by the low tax rate. But raising the tax rate in order to meet the criteria of budget neutrality, labor supply adjustments turn negative. By comparing labor supply and distributional effects of the budget neutral alternatives, we observe that positive labor supply reactions coincide with increasing inequality, which indicates the general equity-efficiency trade-off. Furthermore, the unconditional character of the basic income causes especially...

Means testing versus basic income: The (lack of) political support for a universal allowance

“…which along with the budget constraints (5) and (6) and    = 0 implies that for  = we have (11), along with the envelope theorem. Recall that    and    are the levels that maximize   1 , the utility of the median voter.…”

Labor Supply Elasticity in the Unconditional Basic Income System: Data Sources and Methodological Issues

“…From the original 1,968 hours per year for men, the model estimates a decrease by only five hours, for women a drop from 973 hours to 969. (Colombino & Narazani, 2013) Another estimate of the impact of UBI was carried out in Germany (Horstschräer, Clauss & Schnabel, 2010). It tested a proposal by the German political party Christlich Demokratische Union Deutschlands (CDU) that counted on the abolition of all social benefits and their replacement by citizens' income in the form of a negative income tax of € 600/month for all adults and € 300/month for children, accompanied by a change in the tax system, including changes in health insurance.…”

Structural Labour Supply Models and Microsimulation

“…The FT has been analysed with behavioural microsimulation models (for instance by Aaberge et al, 2000;Fuest, Peichl, & Schaefer, 2008;Paulus & Peichl, 2008;Peichl, 2014) provides a recent survey. UBI and other members of the NIT class have also been analysed with different results (see for instance Aaberge et al, 2000Aaberge et al, , 2004Clavet, Duclos, & Lacroix, 2013;Colombino, 2015;Colombino & Narazani, 2013;Horstschräer, Clauss, & Schnabel, 2010;Islam & Colombino, 2018;Jessen, Rostam-Afschar, & Steiner, 2017;Scutella, 2004;Sommer, 2016). Islam and Colombino (2018) examine in various European countries the case for an optimal tax-transfer rule in the class NIT+FT, assuming all incomes are treated according to the same rule.…”