Universal Basic Income: Inspecting the Mechanisms

28 Pages Posted: 4 Feb 2022

See all articles by Nir Jaimovich

Nir Jaimovich

University of Zurich

Itay Saporta-Eksten

Tel Aviv University

Ofer Setty

Tel Aviv University - Eitan Berglas School of Economics

Yaniv Yedid-Levi

Interdisciplinary Center (IDC) Herzliyah

Multiple version iconThere are 2 versions of this paper

Date Written: February 1, 2022

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: Inequality, labor force participation, universal basic income

JEL Classification: E2, E6, J8

Suggested Citation

Jaimovich, Nir and Saporta-Eksten, Itay and Setty, Ofer Adi and Yedid-Levi, Yaniv, Universal Basic Income: Inspecting the Mechanisms (February 1, 2022). CEPR Discussion Paper No. DP16996, Available at SSRN: https://ssrn.com/abstract=4026924

Nir Jaimovich (Contact Author)

University of Zurich ( email )

Itay Saporta-Eksten

Tel Aviv University

Ramat Aviv
Tel-Aviv, 6997801
Israel

Ofer Adi Setty

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel

Yaniv Yedid-Levi

Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 46150
Israel

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