FITZROY, Felix & JIN, Jim (2010), ‘Efficient Redistribution: Comparing Basic Income with Unemployment Benefits’, Discussion Paper No. 5236, October 2010, Bonn (DE): Institute for the Study of Labor (IZA), iza@iza.org, paper available at https://ftp.iza.org/dp5236.pdf

The authors compare two systems of income redistribution: unemployment benefits (UB) and basic income (BI). First, for a simple utility function, with both intensive and extensive margins, the unemployed are likely better off with pure BI than pure UB, regardless of labour supply elasticity and wage distribution. Then the authors allow a general utility function and ignore intensive margins. For given unemployment, lowering UB and raising BI always benefits the unemployed, raises utilitarian welfare and benefits a poor majority. Reducing unemployment and UB simultaneously can benefit a majority of the employed as well as all unemployed, again for any wage distribution. In other words, the authors show that the majority of the working population gains from switching from unemployment benefits to a universal basic income, with given unemployment and essentially any wage distribution, although the tax rate will increase.

About Yannick Vanderborght

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