Means-Tested Basic Income versus Traditional Welfare

Tirosh, O. and M. Strawczynski (2022), "Government welfare policy under a skilled-biased technological change", Public Finance Review, 50(5), 515-557.

38 Pages Posted: 8 Jul 2020 Last revised: 23 May 2023

See all articles by Michel Strawczynski

Michel Strawczynski

Hebrew University of Jerusalem - Eliezer Kaplan School of Economics and Social Sciences; Hebrew University of Jerusalem _ Public Policy

Oren Tirosh

JDC - Brookdale Institute; Hebrew University of Jerusalem - Federmann School of Government and Public Policy

Date Written: June 5, 2020

Abstract

For the first time in modern history Spain adopted in 2020 a means-tested basic income. Using Saez and Stantcheva (2016) approach to social welfare, we test whether this policy is optimal within the well-documented event of gradual replacement of unskilled workers by machines. This policy is compared to traditional welfare, represented by an optimal Earned Income Tax Credit (EITC). We find that for a liberal social planner, who includes consumption and leisure in individual's utility, a means-tested basic income dominates traditional welfare. For a conservative social planner, who evaluates social welfare by looking only at individual's utility from consumption, traditional welfare dominates a means-tested basic income. However, if we allow for dynamic effects which account for the effects of the EITC on labor supply, traditional welfare dominates the means-tested basic income for both types of social planner. A remarkable result is that for both types of social planner government's role for redistribution substantially rises as machines replace workers.

Keywords: machines, workers, Basic Income, EITC

JEL Classification: H24, H31, H53

Suggested Citation

Strawczynski, Michel and Tirosh, Oren, Means-Tested Basic Income versus Traditional Welfare (June 5, 2020). Tirosh, O. and M. Strawczynski (2022), "Government welfare policy under a skilled-biased technological change", Public Finance Review, 50(5), 515-557., Available at SSRN: https://ssrn.com/abstract=3620139 or http://dx.doi.org/10.2139/ssrn.3620139

Michel Strawczynski (Contact Author)

Hebrew University of Jerusalem - Eliezer Kaplan School of Economics and Social Sciences ( email )

Mount Scopus
Jerusalem, 9190501
Israel

HOME PAGE: http://michelstrawczynski.huji.ac.il/

Hebrew University of Jerusalem _ Public Policy ( email )

School of Public Policy
Jerusalem
Israel
972-2-5881531 (Phone)

Oren Tirosh

JDC - Brookdale Institute ( email )

91130 Jerusalem
Israel

Hebrew University of Jerusalem - Federmann School of Government and Public Policy ( email )

Israel

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