Alternative Basic Income Mechanisms: An Evaluation Exercise with a Microeconometric Model

36 Pages Posted: 8 Mar 2010

See all articles by Ugo Colombino

Ugo Colombino

University of Turin - Department of Economics

Marilena Locatelli

University of Turin - Department of Economics

Edlira Narazani

University of Turin - Department of Economics S. Cognetti de Martiis

Cathal O'Donoghue

National University of Ireland, Galway (NUIG); Rural Economic Research Centre, Teagasc; IZA Institute of Labor Economics

Abstract

We develop and estimate a microeconometric model of household labour supply in four European countries representative of different 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 reforms which include alternative versions of a Basic Income policy: Guaranteed Minimum Income, Work Fare, Participation Basic Income and Universal Basic Income. We produce indexes and criteria according to which the reforms can be ranked and compared to the 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. It turns out that many versions of the Basic Income policies would be superior to the current system. The most successful policies are those involving non means-tested versions of basic income (Universal or Participation Basic Income) and adopting progressive tax-rules. If ヨ besides the fiscal neutrality constraint ヨ also other constraints are considered, such as the implied top marginal top tax rate or the effect on female labour supply, the picture changes: unconditional policies remain optimal and feasible in Denmark and the UK; instead in Italy and Portugal universal policies appear to be too costly in terms of implied top marginal tax rates and in terms of adverse effects on female participation, and conditional policies such as Work-Fare, emerge as more desirable.

Keywords: minimum guaranteed income, work fare, participation basic income, universal basic income, models of labour supply, tax reforms, welfare evaluation, optimal taxation

JEL Classification: C25, H24, H31, I38

Suggested Citation

Colombino, Ugo and Locatelli, Marilena and Narazani, Edlira and O'Donoghue, Cathal, Alternative Basic Income Mechanisms: An Evaluation Exercise with a Microeconometric Model. IZA Discussion Paper No. 4781, Available at SSRN: https://ssrn.com/abstract=1566330

Ugo Colombino (Contact Author)

University of Turin - Department of Economics ( email )

Via Po, 53
Torino, 10124
Italy

Marilena Locatelli

University of Turin - Department of Economics ( email )

Lungo Dora Siena, 100A
Torino, 10156
Italy
+39 011 6703894 (Phone)
+39 011 6703895 (Fax)

HOME PAGE: http://www.de.unito.it/web/member/locatelli/personal-inf.htm

Edlira Narazani

University of Turin - Department of Economics S. Cognetti de Martiis ( email )

Via Po' 53
Torino, 10124
Italy

Cathal O'Donoghue

National University of Ireland, Galway (NUIG) ( email )

University Road
Galway, Co. Kildare
Ireland

Rural Economic Research Centre, Teagasc

Oak Park
Athenry
Carlow
Ireland

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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