Alternative Basic Income mechanisms: an evaluation exercise with a microeconometric model

Publication type

Journal Article


Publication date

June 1, 2010


We develop and estimate a microeconometric model of household labour
supply in four European countries with differing economies and welfare
policy regimes: Denmark, Italy, Portugal and the United Kingdom. We then
simulate, under the constraint of constant total net-tax revenue
(fiscal neutrality), the effects of various hypothetical
tax-transfer-reform basic-income policies: Guaranteed Minimum Income,
Work Fare, Participation Basic Income and Universal Basic Income. We
produce indexes and criteria by which the reforms can be ranked and
compared to current tax-transfer systems. The exercise can be considered
as one of empirical optimal taxation, where the optimization problem is
solved computationally rather than analytically. Many versions of basic
income policies would be superior to the current system, and the most
successful are not means-tested (Universal or Participation Basic
Income) and adopt progressive tax rules. If constraints other than
fiscal neutrality are considered, such as the implied top marginal tax
rate or the effect on female labour supply, the picture changes:
unconditional policies remain optimal and feasible in Denmark and the
United Kingdom; while in Italy and Portugal universal policies appear
instead to be too costly in implied top marginal tax rates and adverse
effects on female participation – conditional policies such as Work Fare
emerge as more desirable there

Published in

Basic Income Studies


Volume: 5






Not held in Research Library - bibliographic reference only

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