by Andre Coelho | Apr 28, 2018 | News
“There will always be hope”. Picture credit: Alex Gi.
On the 11th and 12th of October 2018, the University of Freiburg, in Germany, holds an interdisciplinary Conference titled “Basic Income and the Euro-Dividend as Sociopolitical Pillars of the EU and its Member Countries”. It will be organized by the Department of Economic Policy and Constitutional Economic Theory and the aim is to gather relevant leading researchers and thinkers in Europe to discuss an EU wide approach of a basic income.
In Europe, the public debate about a universal basic income (UBI) is usually a national one. In recent years a European version of a UBI has attracted more and more attention – primarily pushed by the suggestion of Philippe Van Parijs titled a “Euro-Dividend”. This conference aims to shed some light at pros and cons of a EU wide UBI regulation and its relation to national approaches from an interdisciplinary perspective. Both UBI approaches shall be analyzed and discussed with respect to justice, economic and migration effects, legal aspects, creation of solidarity in the EU, and political viability. On the first day, the conference will address general issues about UBI, while the schedule of the second day contains EU-related concepts just like the Euro-Dividend.
Papers are invited from areas such as Philosophy, Sociology, Political Science, Law, and Economics and even Technical Sciences addressing one or more of the following topics:
o UBI and arguments of freedom, solidarity, social and gender justice
o Changing time allocation and shifting time sovereignty, voluntarism and creativity
o Legal aspects of UBI
o Experiments and microsimulations on UBI’s level and impact
o UBI in the digital age / Robots, AI, Labor, and the Welfare State
o The European Pillar of Social Rights, UBI, and Euro-Dividend: Creating European
Solidarity
o Financial feasibility of a UBI and financing concepts of a Euro-Dividend
o EU labor market effects and migration (on international level and within the EU)
More information at:
The “Basic Income and the Euro-Dividend as Sociopolitical Pillars of the EU and its Member Countries” Conference website
by Patrick Hoare | Mar 5, 2018 | News, Research
Credit to: Flickr
In a new paper, published by the Institute of Labour Economics (IZA) in December 2017, James Browne of the Organisation for Economic Co-operation and Development (OECD) and Herwig Immervoll, of both the IZA and the OECD, have discussed what the social and economic consequences might be when replacing some existing social benefits with a comprehensive basic income. The study contributes to the expanding literature (building on the work of Atkinson 1995) that uses the microsimulation technique, a method that builds a computer program based on economic inputs (such as costs, income, expenditure and savings) in order to see what the effect of one variable output (such as poverty or inequality) would be if an input was changed. It was most recently developed by EUROMOD (the only multi-country EU-wide tax-benefit model currently available), and was used in Malcolm Torry’s paper, published in May 2017 by the Institute for Social and Economic Research, which analyzed similar scenarios and outcomes to Browne and Immervoll’s. This article will compare the two papers in an attempt to better understand the growing work in this area.
The Browne-Immervoll paper focused on four countries across Europe that have different population and labour-market structures, as well as very different tax and transfer policies: Finland, France, Italy and the United Kingdom. It looked at a situation where a universal basic income (UBI) would directly replace other working-age cash-payment benefits, including unemployment benefits, social assistance and other generalised minimum-income schemes, in-work benefits, early retirement pensions (i.e. pensions paid to those below retirement age whatever their official label), student maintenance grants and family benefits. In order to ensure that hardship was not ‘built into’ the policy changes, disability allowances and housing benefits would be retained, as well as the funding of other public services, such as the provision of healthcare and education. In line with BIEN’s definition of the UBI, payments would be, in all other ways, universal, paid to the individual, provided at regular intervals in cash, and be unconditional. The funding for the reform would have to take place under budget-neutrality, which would be achieved by taxing the basic income provided and by removing any tax-free allowance from the fiscal model. The marginal rates of tax, thereafter, would remain in accordance to the rates in place prior.
Torry’s paper, dealing specifically with the UK economy, also deemed it permissible to remove tax-free allowances and to tax all earned income in order to contribute toward the funding of the reform whilst maintaining budget-neutrality. Being guided by Hirsch’s recommendations (2015) based on political feasibility, however, Torry allowed for increased Income Tax rates of up to 3 percentage points across the board to help with this funding. Additionally, and significantly, his model maintained – where necessary – the means-tested benefits entirely removed in the Browne-Immervoll version, such that if the introduction of the UBI (which he, alongside others, label a ‘Citizen’s Basic Income’) wouldn’t be sufficient in improving the economic situation of an individual, then the means-tested benefits in place prior to the reform would be available as a form of supplementary benefit.
Given the conservative (or non-existent) fiscal expansion allowed across the modelling, which in both cases is argued as being necessary for realistic simulation, the rate of the net BI payments to be provided was significantly below the poverty line in all cases. In the Browne-Immervoll model, the UBI, for adults, would be at just 21% of poverty line level (defined as 50% of median household income) in Italy (€158), at 32% in the UK (£230), at 49% in Finland (€527), and at 50% in France (€456). The tapering of income at this level (or lower for 16 to 18 year olds) had the inevitable result of an increased rate of poverty in each scenario. This effect was especially pronounced in the UK, rising from 10% to 15%, due to the fact that the UK’s pre-UBI system relied heavily on means-testing and would have, in situations of such low income levels, provided additional benefits no longer available in the new model. Though Torry’s calculated UBI for the UK was only marginally higher for both adults (£264 per month) and young adults (£216 per month), the poverty rate under the conditions of his scheme followed the opposite trend and dropped substantially, falling from 14.84% to 11.8%. This difference – the effect of which is relatively even greater given the fact that Torry, in line with De Agostini, 2017, defined the poverty line as 60% of median household income – can largely be explained by the fact that Torry retained the very same means-tested benefits that Browne and Immervoll removed.
The analysis of potential gains and losses to income groups also reflected the difference in the methodologies used by the papers. The unwillingness in the Browne-Immervoll simulation to increase any current marginal rates of tax in order to collect revenue led to the expected result that those on lower incomes, overall, experienced larger relative losses. The very poorest – with little or no income – experienced gains, due to the universal and unconditional features of the new scheme, but the regressive nature of the flat uniform payments was not sufficiently offset by any progressive mechanisms, and thus the model delivered an overall regressive outcome. In contrast, Torry’s desire to avoid regressivity, and his willingness, therefore, to raise all the marginal tax rates, resulted in the top two highest earning deciles experiencing loses in disposable income of up to 5%, the third highest maintaining their level of disposable income, and the fourth decile down experiencing gains.
In order to understand the effect on work incentives of introducing a UBI, both papers focused on whether the reform would increase the effective tax rates on additional income, thus disincentivizing earning extra at the margins. Though this metric fell, on average, in both simulations – thus showing that there would be an increased (or, at least, not decreased) incentive to work – in the Browne-Immervoll model this was the consequence of removing the benefits associated with low-employment or unemployment, whereas in the Torry model this trend occurred in spite of keeping such benefits in place. As such, Torry’s simulation saw people getting wealthier – thus potentially moving up tax-brackets – but still managed to create a system where the financial rewards to work remained, or were even increased.
In conclusion, Browne and Immervoll determined that introducing a UBI in place of most other means-tested benefits would be costly and lead to negative social outcomes. Torry concluded, by contrast, that a UBI of similar level could be financially and politically feasible and would lead to many positive social outcomes. Given, however, that universal and uniform payments in an unequal society will, by definition, always increase regressivity if not offset by sufficiently progressive funding, the data gathered and logical conclusions derived are completely consistent with the papers’ respective methodologies. This comparative analysis shows that by adjusting a model’s predicated constraints, one can collect quantitative evidence to support different desired conclusions. On this basis, a UBI’s potential introduction does not seem to be determined by its feasibility (implementation, political likelihood, or positive economic outcome) but rather, by whether there can be consensus on what its purpose should be. That is, is UBI a mechanism for equalising wealth or a mechanism to simply provide everyone with something, no matter how small or large that payment may be?
More information at:
James Browne and Herwig Immervoll, ‘Mechanics of Replacing Benefit Systems with a Basic Income: Comparative Results from a Microsimulation Approach’, Institute of Labour Economics IZA, December 2017
A Atkinson, ‘Public Economics in Action: The Basic Income/Flat Tax Proposal’, Oxford: Clarendon Press, 1995
‘Why use EUROMOD?’, Euromod.ac.uk
Donald Hirsch, ‘Could ‘citizen’s income’ work?’, Joseph Rowntree Foundation, 2nd March 2015
Paola De Agostini, ‘EUROMOD Country Report: United Kingdom (UK)’, Euromod, February 2017
by Faun Rice | Feb 19, 2018 | News
Image by MaxPixel: Trakai Castle Lithuania
On December 6, 2017, Swedbank published a report on the Baltic Sea Region entitled “Heart-warming growth is a poor excuse to postpone reforms.” The report includes a chapter on Universal Basic Income, wherein the bank models the current economic feasibility of UBI in the Baltics.
Swedbank is a bank based in Stolkholm, Sweden. Its research arm publishes annual economic assessments of Baltic Sea region countries, which include Germany, Denmark, Norway, Sweden, Finland, Russia, Estonia, Latvia, Lithuania, and Poland. The December 2017 report and executive summary focus primarily on Swedbank’s four main markets: Sweden, Estonia, Latvia, and Lithuania.
The report highlights a time when global economic growth has helped Baltic Sea region countries reach cyclical economic peaks. However, it states that geopolitics, and populism in particular, remain risks to further growth.
Swedbank suggests that rising income inequality, combined with fears about unemployment driven by automation and globalization, contribute to populism and need to be combatted in order to ensure sustainable economic growth. The report proposes that populism can be circumvented by socioeconomic policy that ensures that growth is inclusive (i.e., where prosperity is distributed equitably across all of a country’s economic classes).
As such, Swedbank’s report argues that this period of prosperity in the Baltic Region has created an ideal context for reform and investment in long-term economic wellbeing. The report delivers an in-depth analysis of the economies of Sweden, Estonia, Latvia, and Lithuania, commenting on GDP growth and the potential to create new socioeconomic policies. It also targets specific needs in each country, referencing indicators based partially on the UN’s sustainable development goals.
Sweden scores higher than the Baltics on most of Swedbank’s UN SDG-based indicators. However, the report comments on the need for all identified countries to take the opportunity to enact policy reform.
Swedbank addresses Universal Basic Income as one potential option for reform that will reduce income inequality and encourage sustainable growth. The report concludes that UBI is currently unaffordable for the Baltics, but that elements of a basic or guaranteed income, introduced carefully, could come with numerous social benefits.
Swedbank in Lithuania. Credit to: Delfi
UBI: Current feasibility for the Baltic Region
Swedbank identifies several arguments for UBI, including the idea that it will increase income security and thus reduce fears around unemployment and job loss, along with suggestion that UBI solves or mitigates problems with existing social security systems. The argument that UBI will minimize bureaucratic costs associated with social security systems is less relevant in the Baltics, where only 1.2 to 2.1% of total “social protection” expenditure is administrative.
The report provides a summary overview of some of the questions associated with UBI implementation, such as its impact on employment and the economy, or the concern that it would negatively impact assistance given to the disabled or elderly.
Using 2015 data on government spending on social protections in Estonia, Latvia, and Lithuania, Swedbank evaluates the feasibility of a budget-neutral UBI in these countries. The report tries two different models, one in which old-age pensions are retained by the elderly, and the other in which pensions are included in the money redirected towards UBI. For each of these two scenarios, the report presents two further options: one wherein all residents of a country receive UBI, and another wherein children up to the age of 16 receive only 50% of adult UBI payments. Swedbank does not make any changes to tax revenue in these examples.
The report finds that, given existing budgets, UBI monthly payments to individuals would only reach 48-55% of the at-risk-of-poverty threshold for each Baltic country, less if old-age pensions were retained for the elderly. A UBI at the poverty line, distributed to all residents equally, would require doubling social security budgets in Latvia and Estonia, or an 82% increase in Lithuania, becoming 20-25% of each country’s GDP.
While Swedbank concludes that a UBI is currently unaffordable in the Baltics, the report comments that some components of a “basic income model” might simplify and improve existing social security programs. The authors suggest that governments could improve their systems’ accessibility by eliminating means testing and other conditions currently in place for those trying to get support. They also propose that a gradual decrease in benefits, rather than a sharp removal once a person becomes employed, might help incentivize recipients to stay in the labour market.
Another alternative discussed is a “partial” guaranteed income delivered only to particular cohorts of people. For example, Lithuania has an existing program that provides lump-sum cash benefits to every child born, with no conditions placed upon family income.
More information at:
“Baltic Sea Report: Heart-warming growth is a poor excuse to postpone reforms,” Swedbank, December 6th 2017
“Sustainable Development Goals,” United Nations
“Swedbank Macro Research: Baltic Archive,” Swedbank, February 2018
Vlada Stankūnienė and Aušra Maslauskaitė, “Family Policies: Lithuania (2015),” Population Europe Resource Finder & Archive, 2015
by Jurgen De Wispelaere | Feb 16, 2018 | News
ESPAnet is the leading comparative social policy conference in Europe. Jurgen De Wispelaere (Bath University) and Heikki Hiilamo (Helsinki University) are coordinating a stream on “The Political Economy of Basic Income: Opportunities, Constraints, Trajectories” for its upcoming conference on transformations of European welfare systems in Vilnius (Lithuania), on the 30th of August – 1st September 2018. The submission of papers ends on the 19th of March 2018.
The idea of granting each (adult) citizen an unconditional basic income, independent of means test or work requirement, has made major strides in recent policy debates across Europe. Several countries in Europe and North-America are experimenting with or planning basic income-inspired trials, while in other jurisdictions basic income is considered at the highest level of policy-making.
Mainstream policy actors embracing a proposal that until very recent was considered to be part of a radically utopian fringe raises a number of policy questions, which we expect the proposed abstracts to cover. What explains the current interest in the basic income proposal? Are we experiencing a genuine window of opportunity firmly embedding basic income into the policy process in mature welfare states, or are we instead witnessing a fad that is likely to fade when feasibility constraints are taken into account? What are the key policy determinants for understanding the feasibility and stability of basic income against the background of established institutions and policy configurations, as well as recent developments in European welfare states? Which social, economic and political factors affect the building of robust basic income constituencies and a stable political coalition across stakeholder groups and political actors? What challenges need to be overcome and which trajectories are most suited to pilot and/or institute a basic income? How must basic income models be adapted to accommodate political and institutional constraints? Does systematic variation in how different welfare regimes respond to political challenges explain the variation in basic income models under consideration?
This stream aims to advance the policy debate around basic income by critically examining these and related questions in the context of European welfare states. Our aim is to put the policy research into basic income on a firm theoretical and empirical footing, by selecting contributions that employ insights from recent welfare state and political economy research to examine aspects of basic income design and implementation. We are particularly interested in contributions that investigate novel aspects of and/or adopt novel methodologies in examining the political economy of basic income. We will also give priority to contributions that embrace a distinctively comparative focus to draw out the diversity of opportunities, constraints and trajectories in the basic income debate across European welfare states.
by Malcolm Torry | Feb 2, 2018 | Opinion
Discussion of alternatives to Citizen’s Basic Income are increasingly debated, so we are here publishing for the first time a paper prepared in 2015 for a consultation organised by some of the UK’s major charities on options for reforming the benefits system.
Introduction
This short article outlines three options for the reform of the UK’s tax and benefits system: Tax Credits, Negative Income Tax, and Citizen’s Basic Income.
The descriptions and discussions assume that both the tax unit and the benefit unit are the individual and not the household. The complexities related to household-based options would require additional description and discussion.
Tax Credits
( – real ones: not what the Government calls ‘tax credits’)
A credit is allocated to every individual. If someone is earning nothing, the full credit is paid. As earnings rise, the credit is withdrawn. At the point at which the credit is exhausted, Income Tax starts to be paid. (A Tax Credit that is withdrawn as unearned income rises is theoretically a possibility, but the administration would be even more complicated than for the version described here.)
In the diagram, the credit is worth £x per week. As earnings rise, the credit is withdrawn, so net income rises slower than earned income. At earnings of £y per week (the break-even point), the credit has all been withdrawn. Above this point, Income Tax is paid.
The diagram assumes that the rate at which the credit is withdrawn is the same as the tax rate. If the rates are different then the slope of line EF is different above and below earnings of £y per week.
Administration
The tax credit can be administered by the Government or by the employer. If the Government administers the Tax Credit, then the employer must provide regular and accurate earnings information to the Government, as with the current Universal Credit. If the employer administers the Tax Credit then, if someone moves between employers, their Tax Credit administration has to be transferred between employers. If they have a period of unemployment, then administration of the Tax Credit has to be handed to the Government and then on to the new employer. If someone has two employments, then the employers have to decide which of them will administer the Tax Credit. And if someone has occasional other earnings, then their employer needs to be informed so that the Tax Credit can be withdrawn accordingly.
If every working age adult receives the same Tax Credit then neither their employer nor the Government needs to know any personal details. If people in different circumstances receive different levels of Tax Credit then their employer and the Government will need to know individuals’ circumstances in order to allocate the correct credit.
Our current income tax system is cumulative. An annual amount of income is not taxed. Each week, or each month, the employer has to calculate how much tax to deduct so that, by the end of the year, the correct amount of tax has been deducted. With Tax Credits, the tax system would be non-cumulative. Each week, or each month, the correct amount of the Credit would need to be paid in addition to earnings, or no Credit would be paid and earnings would be taxed. A non-cumulative system requires a single tax rate, so anyone paying higher rate tax would need to pay additional Income Tax at the end of the tax year.
Negative Income Tax
Income Tax deducts money from earnings above an earnings threshold, and a Negative Income Tax pays money to the employee below the threshold: so a Negative Income Tax scheme functions in the same way as a Tax Credit scheme. The only difference is in the specification. A Tax Credit scheme specifies the amount to be paid out when there are no earnings, along with a withdrawal rate as earnings rise. For a Negative Income Tax, the threshold is specified along with tax rates above and below the threshold. If the rates above and below the threshold are the same, then for earnings below the threshold, the same amount is paid out for earnings of £z below the threshold as would be collected in tax on earnings of £z above the threshold.
As the system is essentially the same as a Tax Credit scheme, the same diagram applies. Different rates above and below the threshold would result in the EF having different slopes above and below earnings of £y per week. Administrative considerations would be the same as for Tax Credits.
Citizen’s Basic Income
A Citizen’s Basic Income is an unconditional income paid to every individual by the Government, and it is not withdrawn as earnings rise. Tax is paid on all or most earned income.
In the diagram, a Citizen’s Basic Income of £x per week is paid to everyone. All earnings are taxed. The line EF shows the net income.
(The diagram assumes that a single tax rate is charged on all earnings.)
Administration
The Government pays a Citizen’s Basic Income to every individual, the amount depending only on the person’s age ( – larger amounts could be paid to older people as a Citizen’s Pension, and lower amounts to children and young people). Employers would continue to administer Income Tax via PAYE as they do now.
(A variant is a Participation Income. This would require fulfilment of a ‘participation condition’ before receiving it. The graph would be the same as for Citizen’s Basic Income, but only for those receiving it. The participation conditions would need to be specified and each individual’s fulfilment of them would have to be monitored. This would result in considerable administrative complexity, and would also mean that many of a Participation Income’s effects would be closer to those of means-tested benefits than to those of a Citizen’s Basic Income.)
Comparison
Negative Income Tax, Tax Credits, and Citizen’s Basic Income, all generate the same net income diagram, so all three schemes would reduce marginal deduction rates (the total rate of withdrawal of additional income), would incentivize employment, and would enable families to more easily to earn their way out of poverty.
The differences between the schemes are administrative.
(For more detailed discussion of all of these options see Malcolm Torry, The Feasibility of Citizen’s Income (Palgrave Macmillan, 2016), pp. 214-230.)
