by Patrick Hoare | Nov 4, 2017 | News, Research
In a paper released in October 2017, the International Monetary Fund (IMF) has analysed the feasibility and effects of introducing a Universal Basic Income (UBI) in various economies, looking at how it might help ease destructive levels of inequality present in many societies around the globe.
The ‘IMF Fiscal Monitor: Tackling Inequality’ focused on how fiscal policy can help governments address high levels of income inequality (from here simply ‘inequality’) while minimizing potential trade-offs between efficiency and equity. As part of the second half of the discussion, the UBI was considered as a mechanism of fiscal redistribution currently being widely debated.
Underpinning the analysis of UBI were a number of premises. The first of these was the assumption that some inequality was inevitable within a market-based economic system. Even though data reveals a decline in the global levels of inequality over the last three decades, the increased inequality within certain economies has had adverse effects, not only in terms of social corrosion and political polarisation but also in terms of economic prosperity. As such, the inequality the report sought to address was the type that was specifically having a negative impact.
The second premise clarified that measures aiming to alleviate inequality should not come at the expense of achieving economic GDP growth. Supporting this, data was presented showing that between 1988 and 2008, across all types of economies, there had been an average growth of real income per capita across every income bracket, even if the increases had been greater for those earning more. It was also shown that an increase in overall growth between 1985 and 2015, in particular in East and South Asia and the Pacific Region, had coincided with huge reductions in relative poverty and absolute poverty, and, therefore, with increases in social welfare. With no clear trend between increased inequality and growth, and with various studies suggesting, contrarily, either that redistributive policies may slow growth or that redistributive policies may help growth (given that the marginal propensity to consume among the poor is higher), it was determined that, on balance, growth should not be unduly undermined.
The third condition stipulated that, given the limited fiscal space most economies operate within, simulations measuring the impact of a UBI should be performed under the assumption of budget neutrality. The vast drop in progressivity among the tax systems of the OECD member states, in particular the drop in the average top rate of personal income tax (PIT) from 62% to 35% between 1980 and 2015, does not seem to have been economically motivated, since during this period there was no evidence of: increased income tax elasticity; proportionally less income going to the top earners (the opposite was the case); increased support for the social welfare of the rich; decreased support for redistribution (the opposite was the case); or, a more progressive tax system being harmful to growth (there was some evidence to suggest the opposite could be the case). It was therefore accepted that this lower progressivity must be the consequence of political preference. As such, in order to control for various political perspectives, the funding for a UBI would have to come from a combination of spending cuts and increased taxes.
Following the establishment of such conditions, the central examination of the UBI was based around simulations of implementation within eight economies: Brazil, Egypt, France, Mexico, Poland, South Africa, the UK and the US. The choice of countries controlled for heterogeneity in geographical area, developmental stage (emerging market and advanced economies), and the generosity and progressivity of the countries’ current noncontributory transfers. The analysis of a UBI was then judged on whether it could increase coverage (the number of beneficiaries) and progressivity (those most in need benefiting proportionally more) of current redistributive programs, without impeding growth.
In almost all cases coverage increased, given the universality of UBI, however improvements in progressivity very much depended on the financing method and the existing level of progressivity within a particular economy. Where UBI was seen as a replacement for current benefit systems, countries with low progressivity but high coverage, such as South Africa, saw larger swathes of their lower earners suffer at the expense of a smaller percentage of beneficiaries within the same income category. In this circumstance, where consumption inequality is higher as a consequence of income inequality, progressivity as well as coverage could be improved if a UBI was financed by increased indirect taxation (consumption tax) rather than through cuts to the current system. In economies where both coverage and progressivity are already relatively high, such as the UK and France, replacing the current system with a UBI would be regressive. Similarly, even in a country where progressivity is high but coverage low, such as Brazil, the introduction of a UBI as a replacement would likely trade one off against the other, ultimately negatively affecting lower income households. In the situation where PIT among the top-earners is increased as a way of financing a UBI (altering the economic behaviour of these payers), the model calibrated to the US economy (moderate coverage and progressivity) found that, although efficiency, in terms of output forgone, was lower than against a system with indirect taxes, the PIT increase yielded greater overall welfare, especially where aversion to inequality was high. The final scenario, where simulations focused on comparing a UBI funded either directly, indirectly or through cuts, against the expansion of a benefit – the Earned Income Tax Credit (EITC) in the US – at the same fiscal cost, found that, due to the targeted nature of the EITC subsidy, welfare improvements were higher than would experienced under the implementation of a UBI.
In summary, The Fiscal Monitor concluded that a perfectly implemented means-tested system would always be superior to a UBI, since it would ensure the necessary coverage and provide the greatest level of progressivity within the bounds, constraints and conditions assumed. Therefore, in countries where there is a ‘good’ transfer program, the finance necessary to fund a UBI would be better used on improving the current system. That said, in reality, given the existence of imperfections in such systems, a UBI could be a powerful means of combating poverty and extreme poverty, especially in countries where both progressivity and coverage is poor. It was also noted that a UBI could be implemented for other reasons, such as in combatting job market disruptions associated with technological progress.
More information at:
IMF Publications, ‘IMF Fiscal Monitor: Tackling Inequality, October 2017’, International Monetary Fund website, October 2017
by Andre Coelho | Nov 2, 2017 | Research
Trucks transporting PAL boxes. Credit to: Jesse M. Cunha and Giacomo De Giorgi
Vox Media, a USA online news outlet looks at a food support program in Mexico aimed at its poorest citizens, as a recent article shows. The program PAL (in Spanish “Programa de Apoyo Alimentario [Food Support Program]”) was first initiated in 2003 and has been closely monitored over the years. This program included, as a part of its roll out, three groups: one receiving in-kind transfers (food), another cash transfers with no strings attached and another still got nothing (control group). Recent findings indicate that there have been absolutely no inflation indicators during or related to the program (in kind or cash groups). Critics have been concerned about basic income programs leading to uncontrollable inflation. In fact, for almost 15 years now participants in the PAL program have enjoyed better nutrition and health outcomes, as well as lower prices in larger centres with greater competition and no inflationary outcomes have been found.
More information at:
Jesse M. Cunha and Giacomo De Giorgi, “The price effects of cash versus in-kind transfers”, Federal Reserve Bank of New York, Staff Reports, August 2015
Dylan Matthews, “A new study debunks one of the biggest arguments against basic income”, Vox, September 20th 2017
by Kate McFarland | Oct 29, 2017 | Research
A basic income and job guarantee are commonly presented as competing solutions to poverty and economic insecurity. In a new paper for the Institute of Labor Economics, however, Felix FitzRoy and Jim Jin of the School of Economics and Finance University of St. Andrews make a case for combining the approaches.
According to the authors, proponents of a basic income often fail to give due attention to the importance of work and employment to subjective well-being and life satisfaction; unlike a basic income, a job guarantee can provide a good job for all those who want to work, and can also offer training and experience to allow individuals to advance to better jobs. At the same time, the authors argue that a job guarantee overlooks the importance of non-standard employment (they note, for example, that self-employed workers often report high levels of satisfaction, and value their autonomy) and unpaid labor, such as child and elder care.
FitzRoy and Jin develop a proposal for a modest basic income (or partial basic income) in conjunction with a guaranteed job offer for those able and willing to work, striving to combine the advantages of each approach in a policy package that is also both affordable and politically feasible.
Read the full paper here:
Felix FitzRoy and Jim Jin, “Basic Income and a Public Job Offer: Complementary Policies to Reduce Poverty and Unemployment,” Institute of Labor Economics (IZA) Policy Paper No. 133.
Reviewed by Russell Ingram
Photo: Employment Office (1916), CC BY 2.0 Seattle Municipal Archives
by Sara Bizarro | Oct 27, 2017 | Research
Researchers Krist Vaesen from the Netherlands and Joel Katzav from Australia, have published a paper in Plos One where they analyze what would happen if research money was equally distributed among researchers without the need for grant applications. The paper discusses the results of such a policy in the United States, Netherlands, and the United States. This paper was then discussed by Times Higher Education writer David Mathews who published an article discussing the idea that Basic Income could be a better option than writing research grants for academics. The Times Higher Education is a leading company that uses data to create University Rankings. They also publish academic articles and book reviews with the highest standards.
Joel Katzav and Krist Vaesen
According to the paper, if money was distributed by all researchers, each would be entitled to a stipend of 600,000 dollars every five years in the United States and 500,000 in the Netherlands. In the UK the five-year stipend would be lower, around 364,000 dollars, which would limit the possibility of hiring post-doc students and fund equipment and could lead to a dilution of resources. However, in order to fund projects, researchers could pull their funds together. These stipends are on top of researchers’ salaries and would be used for the projects, hiring postdocs and Ph.D. students, as well as traveling and purchasing equipment.
Giving a Basic Income Research Grant to all researchers would eliminate the need for endless grant proposals, saving researchers a lot of wasted time and resources, since the writing of grants has become an industry and is now often done by specialized companies that charge for their services. This equal distribution could also eliminate gender and ethnic bias. Furthermore, there could be “higher” Basic Income Research Grants in areas where research projects are more expensive to run or that are deemed to have higher social value, such as cancer research. Researchers would be able to negotiate larger projects by pulling their grants together with all researchers at an equal footing. According to the Times Higher Education, the paper claims that the current competitive system would only make sense if those who “win” perform “extraordinarily” above average to compensate for all the wasted time and resources, which may not be the case. The paper shows that this method of distribution would not dilute funds and could be functional, while still having some transformative results in academic research.
by Furui Cheng | Oct 14, 2017 | News, Research
Jay Hammond
Jay Sterner Hammond (July 21, 1922 – August 2, 2005) was an American politician of the Republican Party who served as the fourth Governor of Alaska from 1974 to 1982. Hammond was born in Troy, New York and served as a Marine Corps fighter pilot in World War II with the Black Sheep Squadron. In 1946, he moved to Alaska where he worked as a bush pilot. Hammond served as a state representative from 1959 to 1965 and as a state senator from 1967 to 1973. From 1972 until 1974 he was the mayor of the Bristol Bay Borough. In 1974 he was elected governor of Alaska. He oversaw the creation of the Alaska Permanent Fund in 1976, which, since the early 1980s, has paid annual dividends to Alaska residents. From 1985 to 1992 he hosted a television series called Jay Hammond’s Alaska. He wrote three autobiographies. This article is a short introduction of his last book.
Petroleum is the devil’s excrement, warns Juan Pablo Pérez Alfonso, a Venezuelan founder of OPEC. Waste, corruption, consumption, and failing public services are repeated curses in oil rich countries. But Alaska managed to avoid much of the befouling of “devil’s excrement” by actions that served to at least halfway pin on a “diaper.”
Article 8, Section 8, of Alaska’s constitution states: “The legislature shall provide for the utilization, development, and conservation of all natural resources belonging to the state, including land and waters, for the maximum benefit of its people.” This clause prompted Hammond to attempt to assure that all Alaskans received a discernible share of those benefits and to avoid the common past practice of selectively benefiting the favored few at the expense of the many. This battle to avoid selective benefit still continues today.
Before the permanent fund dividend, Hammond had tried several ways to comply with the mandate of the aforementioned constitution, but all fell flat. His first attempt was to abolish fish traps in the Bristol Bay Borough in 1965. A whopping 97 percent of the fishing payday made within the boundary went to others and local residents got but a paltry 3 percent! He proposed a use tax to be paid by all fishermen on their catch. To offset the impact on local fishermen already paying high property taxes, he proposed to putting tax money into a conservatively managed investment account, then each year issuing residents one new share of dividend-earning stock. He called the concept “Bristol Bay, Inc.” The word “tax” made most Alaskans oppose it.
With passage of the Alaska Native Claim Settlement Act (ANCSA) in 1971, Alaska’s aboriginal peoples were accorded 44 million acres of land and $900 million by the U.S. Congress. Hammond proposed again to follow the Bristol Bay, Inc. model to manage ANSCA grants: create a conservatively managed investment account and spin off equal dividends to every Alaska Native. This account was proposed to be managed by professionals under counsel supplied from an elected advisory board of Natives representing every Native group in Alaska. People would have the opportunity to lift themselves up by being stockholders, providing themselves with the means (along with the responsibility) to use it for their collective best interests. Hammond’s proposal failed in the face of obstructions by lawyers, financially and politically powerful Natives, and other local forces.
His third attempt was to assure that the more affluent rural areas with a sufficient tax base help fund government services the same way as urban centers are required to do. Under his proposed statewide property tax, affluent municipalities, such as the North Slope Borough with high oil property values, would have to assume more of their local government service costs than would those that were virtually destitute. That proposal also fell flat on its face. Unfortunately, inequitable taxation continues to contribute to Alaska’s urban/rural divide.
In another effort to reduce crippling costs of services to hundreds of economically unviable communities – many of which were not connected by roads and lacked adequate housing, schooling, and basic services – he proposed to provide population centers with the greatest economic potential with topnotch schools and other services as a means to encourage migration from other communities. Once again the proposal fell flat.
After becoming governor in 1974, he proposed that 50 percent of all mineral leases, bonuses, royalties, and severance taxes be deposited into a conservatively managed investment account. Each year one-half of the account’s earnings would be dispersed among Alaskan residents, each of whom would receive, annually, one share of dividend-earning stock. The other half of the earnings could be used for essential government services.
Hammond had many reasons for creating such an investment account to which all Alaskans would be shareholders:
- To encourage contributions into the investment account and to protect against its invasion by politicians.
- To transform oil wells pumping oil for a finite period into money wells pumping money for infinity.
- To pit collective greed against selective greed.
- To eliminate the magnetic attraction for others from elsewhere who might otherwise be inclined to flock to Alaska in order to get big money in a short term.
- To instill a sense of ownership in all Alaskans that would incline them to support healthy resource development and resist unhealthy versions that would damage the environment or otherwise.
- To eliminate controversial state expenditures for such things as abortions or family planning. Individuals wishing for these services could pay for it from their dividends or utilize free ultrasound or abortion assessment services.
To promote these concepts, fashioned after his failed Bristol Bay, Inc. proposal, Hammond created “The Alaska Public Forum”. Fortunately, this attitude came in the wake of a $900 million windfall in 1970 from leases issued in Prudhoe Bay which had been “blown” in the eyes of many people. To their credit, however, a sufficient number
of legislators were successful in passing legislation creating what they termed “The Alaska Permanent Fund.” This statute at least created a semblance of Alaska, Inc., but fell far short of what Hammond had hoped for.
For more detailed information about the book, please click here.
Many thanks for Russell Ingram’s reviewing and editing.
by Peter Vandevanter | Oct 13, 2017 | News, Research
Congressional Quarterly (CQ) has published a research paper on basic income (BI) that explains its universal popularity due to automation growth estimates worldwide. The CQ Researcher covers everything from Scott Santens’ crowdfunded self-financing mechanism to U.S. ex-President Obama’s belief that the debate may last 10 to 20 years.
The 21-page research paper, written by London freelancer Sara Glazer, includes an explanation of the Alaska Permanent Fund Dividend (PFD) – a basic income like payment to all residents – and revels in the prediction of automation worldwide. Predicted percentage of job losses are shown in charts for 8 countries, as well as for the Organization for Economic Co-operation and Development (OECD) (made up of 21 countries).
BI appeal to the political Left is explained as the continuation of a welfare state. Its appeal to the political Right is explained as a libertarian limit on government intrusion and cost. However, the research warns that many people believe the poor may be worse off: “Some anti-poverty advocates say a UBI would increase both poverty and inequality by using welfare funds now spent on the poorest two-fifths of the population to provide cash to people of all income levels“.
The report also mentions the current endorsement of Facebook co-founder Mark Zuckerberg, as well as other Silicon Valley entrepreneurs like Chris Hughes. Moreover, references are made to the 1960s precedent of U.S. President Lyndon Johnson’s instituted War on Poverty as well as U.S. President Richard Nixon un-instituted 1970s negative income tax credit. This latter issue has been today resurrected by Congressman Ro Khanna, by his proposed bill for extending the earned income tax credit for the poor.
The Canadian 1970s experiment, called Mincome, is described as a positive pilot project, acting as a precedent for current basic income pilot projects in Finland, the U.S. (California ), Canada (Ontario ), Spain (Barcelona), Africa (Give Directly) and the Netherlands. In this report Karl Widerquist says that, with a BI, people will be allowed without fear to work the way they feel best. In an opposite viewpoint, Pavlina Tcherneva argues that a Job Guarantee program would be a better, less costly, way to make sure everyone had work they cared for.
More information at:
David Wheeler, “What if everybody didn’t have to work to get paid?”, The Atlantic, May 18th 2015
Chris Weller, “President Obama: We’ll be debating unconditional free money over the next 10 or 20 years” Business Insider, October 12th 2016
Kate McFarland, “SPAIN: Barcelona prepares study of Guaranteed Minimum Income”, Basic Income News, February 26th 2017
Peter Vandevanter, “United States: Ro Khanna introduces EITC bill, garners comparison to BI”, Basic Income News, October 2nd 2017
Kate McFarland , “THE NETHERLANDS: Government authorizes social assistance experiments in first five municipalities”, Basic Income News, July 11th 2017
Ashley Blackwell, “KENYA: GiveDirectly’s Guaranteed Monthly Income Expands to 200 Villages Fall 2017”, Basic Income News, September 10th 2017
Kate McFarland, “FINLAND: First Basic Income payments sent to experiment participants”, Basic Income News, January 12th 2017
Peter Vandevanter, “United States: Ro Khanna introduces EITC bill, garners comparison to BI”, Basic Income News, October 2nd 2017
Ashley Blackwell, “KENYA: GiveDirectly’s Guaranteed Monthly Income Expands to 200 Villages Fall 2017”, Basic Income News, September 10th 2017
Kate McFarland, “FINLAND: First Basic Income payments sent to experiment participants”, Basic Income News, January 12th 2017
