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 Andre Coelho | Feb 2, 2018 | News
The Council of Europe Assembly voted on 23 January 2018 in favour of a Resolution concerning basic income. A clear majority of the participants voted in favour of the policy (52%), while 36% voted against it and 13% abstained.
With this result, the Council of Europe has adopted the Resolution’s text. The latter was based on a report delivered by the Committee on Social Affairs, Health and Sustainable Development (on the 5th of January 2018), which states the case for a basic citizenship income. In this short research report, the basic income policy is presented in general terms, justified mainly in its ability to reduce poverty and poverty-related social problems in welfare states, mainly focused in European countries. The report also defends the basic income policy on the grounds of it being able to remove present-day disincentives to work of most conditional means-tested social assistance programs in the referred countries, while reducing bureaucracy and stigmatization associated with these.
The Council of Europe had already released another report in 2015, making a close connection between living with dignity in the 21st century and basic income. The result of this vote from the Council of Europe’s Assembly generally reflects recent efforts to survey the opinion of people regarding basic income, such as the European Social Survey 2016 Round 8 results. A broad comparison shows that positions towards basic income are divided, but with a tendency to being open to the idea.
More information at:
Josh Martin, “EUROPE: Council of Europe releases largely pro-basic income report”, Basic Income News, September 7th 2015
Patrick Hoare, “EUROPE: European Social Survey (ESS) reveal findings about attitudes toward Universal Basic Income across Europe”, Basic Income News, January 20th 2018
by Patrick Hoare | Jan 20, 2018 | News
Map of Europe. Credit to: Flickr
The European Social Survey (ESS) has published its 2016 Round 8 results, which include, for the first time in its history, a polling question asking participants to express their attitude to the hypothetical introduction of a basic income scheme in society.
The 34,604 participants across 18 European countries were asked whether, overall, they would be ‘strongly against’, ‘against’, ‘in favour’ or ‘strongly in favour’ of a scheme – labelled by the ESS as a ‘basic income scheme’ – that operates under the following conditions:
- The government pays everyone a monthly income to cover essential living costs;
- It replaces many other social benefits;
- The purpose is to guarantee everyone a minimum standard of living;
- Everyone receives the same amount regardless of whether or not they are working;
- People also keep the money they earn from work or other sources;
- This scheme is paid for by taxes.
There was also an option to leave no response to the question. The answer rate across the countries mostly fell between 90% and 98%, though the two anomalies were Poland, with an 85.3% rate, and the Russian Federation, with an 80.9% rate. Given it would be conjecture to determine reasons for this variation (since any information of this type wasn’t included in the survey), the more in depth analysis focused on those who did express opinion.
Of this group, the Russian Federation had the highest percentage ‘in favour’ or ‘strongly in favour’ of the ‘basic income scheme’, at a combined 73.2%, whilst participants in Norway were the least in favour, with only 33.7% answering in the positive. Taking the Esping-Anderson definition used throughout the ESS analysis of country groupings (based on Welfare State Regimes in 1990), it was evident that there was a slight, but evident, correlation between the category the country falls within and the general positivity expressed in the survey. The ‘Eastern Europe’ countries, for example, tended to be generally more in favour of the scheme, with, in addition to Russia, 65% of those in Slovenia, 58.5% of those in Poland, 52.2% of those in the Czech Republic, and 46.7% of those in Estonia either ‘in favour’ or ‘strongly in favour’ of the scheme (representing the 1st, 3rd, 5th, 8th and 12th countries, respectively, most in favour of the idea). Conversely, the countries falling within the ‘Social Democratic’ grouping tended to be generally less in favour of the scheme, with 66.3% of those in Norway, 62.4% of those in Sweden, 54.0% of those in Iceland, 50.2% of those in Netherlands and 44.3% of those in Finland either ‘against’ or ‘strongly against’ the scheme (representing the 1st, 3rd, 5th, 9th and 12th countries, respectively, least in favour of the idea). The countries within ‘Christian Democratic’ grouping – Germany, France, Austria and Belgium – plus the UK and Ireland, showed a more even split, generally in favour of or generally against, whilst Israel and Switzerland were treated as their own categories, with the former 65% either ‘in favour’ or ‘strongly in favour’ of the idea, and the latter, at the other end of the scale, 65.3% either ‘against’ or ‘strongly against’ the idea.
In terms of demographic breakdown, age seemed to be a driver of support, with all country groupings showing the highest level of support within the 15-34 age group, from which a common curtailing trend prevailed as the age bracket increased. The source of participant’s income also seemed to determine level of support in a similar cross grouping trend, with all country categories showing the highest level of support when income was derived from ‘unemployment benefits’ or ‘other social benefits’, and conversely, all showing the lowest level of support when income was accrued through ‘self-employment’, ‘pension’, and to a lesser extent, through general ‘wages or salaries’. Though the level of actual income, in terms of income percentile category within the country groupings, offered no indication as to whether a participant would be generally for or against the idea, there was a clear trend that, if the participant felt that they were finding it ‘very difficult’ or ‘difficult’ to cope with their level of income, they were far more likely to be pro the idea of the basic income scheme. Somewhat pertaining to real income not being an indicator, ‘social class’ (defined by ‘skilled workers’, ‘unskilled workers’, ‘small business owners’, ‘lower-grade service class’ and ‘higher-grade service class’) showed no variation in preference other than the country groupings’ reasonably strong overall proclivity. ‘Gender’ and ‘educational level’ both showed scattered and inconclusive trending.
Though the results of the survey do give some indication (and from a large data source) of people’s openness to ‘basic income’ across much and varying parts of Europe, the wording of the question requires that caution is taken when interpreting the data. Whilst the ESS description of a ‘basic income scheme’ does include all the elements BIEN determine as being necessary when talking about the concept (universality, unconditionality, with payments made periodically, in cash and to the individual), it also states, additionally, that it would would be paid for ‘by taxes’ and that it would replace ‘many other social benefits’. It was, therefore, the opinion of a particular implementation of universal basic income that was sought after (especially where the latter condition’s inclusion was concerned), where preconceived notions of the scheme’s potential positives or negatives are already affirmed. That is, it implies that there is no option for basic income to be included in addition to, and thus leading to an expansion of, the current social security system, but only as part of one that is fixed or diminishing in size. Other recent surveys, such as the IPSOS Mori in the UK, and the Politico/Morning Consult in the US, used wording only focusing on the basic income concept rather than its implementation.
More information at:
‘ESS8 – 2016 Data Download’, European Social Survey.org, October 31st 2017
Stuart Smedley, ‘Half of UK adults would support universal basic income in principle’, Ipsos.com, September 8th 2017
Patrick Hoare, ‘US: New POLITICO/Morning Consult poll finds that 43% of Americans are in favour of a UBI’, Basic Income News, October 5th 2017
by Malcolm Torry | Dec 28, 2017 | Research
Satelite picture over Europe. Credit to: TechCrunch.
A new working paper from the Institute for Social and Economic Research at the University of Essex reports on research using the EUROMOD microsimulation programme to simulate the labour market effects of several different tax and benefits reforms in countries in different parts of Europe.
The reform options tested are as follows:
- An unconditional Basic Income – correctly defined
- A general Negative Income Tax – that makes a payment if earnings fall below a threshold (the payment being proportional to the amount that wages fall below the threshold), and deducts tax above the threshold
- What the researchers call a ‘conditional basic income’ – which is a means-tested benefit that is withdrawn at a rate of 100% as earnings rise, thus constituting a guaranteed minimum income
- In-work benefits – means-tested in-work benefits without a relationship with the income tax threshold.
All of the reforms assume a flat income tax.
The research finds that the General Negative Income Tax usually promises the most efficient employment market: although in the context of the UK there is almost nothing to choose between a General Negative Income Tax and an Unconditional Basic Income. The research did not take into account the administrative complexities of a Negative Income Tax. If it had been possible to simulate the effects of administrative complexities on labour market decisions then they might have found that in the UK an Unconditional Basic Income would have turned out to be the most efficient option.
The working paper is entitled The case for NIT+FT in Europe: An empirical optimal taxation exercise, and is by Nizamul Islama and Ugo Colombinob.
Click here to read the working paper; or here to download the paper as a pdf.
Abstract
We present an exercise in empirical optimal taxation for European countries from three areas: Southern, Central and Northern Europe. For each country, we estimate a microeconometric model of labour supply for both couples and singles. A procedure that simulates the households’ choices under given tax-transfer rules is then embedded in a constrained optimization program in order to identify optimal rules under the public budget constraint. The optimality criterion is the class of Kolm’s social welfare function. The tax-transfer rules considered as candidates are members of a class that includes as special cases various versions of the Negative Income Tax: Conditional Basic Income, Unconditional Basic Income, In-Work Benefits and General Negative Income Tax, combined with a Flat Tax above the exemption level. The analysis shows that the General Negative Income Tax strictly dominates the other rules, including the current ones. In most cases the Unconditional Basic Income policy is better than the Conditional Basic Income policy. Conditional Basic Income policy may lead to a significant reduction in labour supply and poverty-trap effects. In-Work-Benefit policy in most cases is strictly dominated by the General Negative Income Tax and Unconditional Basic Income.
by Faun Rice | Dec 21, 2017 | Research
“Wise Cities & the Universal Basic Income: Facing the Challenges of Inequality, the 4th Industrial Revolution and the New Socioeconomic Paradigm” by Josep M. Coll, was published by the Barcelona Centre for International Affairs (CIDOB) in November 2017. CIDOB is an independent think tank in Barcelona; its primary focus is the research and analysis of international issues.
The Wise Cities Model
CIDOB has published other works about a concept it calls “Wise Cities,” a term intended to holistically encompass words like “green city” or “smart city” in popular usage. Wise Cities, as defined by CIDOB and others in the Wise Cities think tank network, are characterized by a joint focus on research and people, using new technologies to improve lives, and creating useful and trusting partnerships between citizens, government, academia, and the private sector.
The 2017 report by Coll opens with a discussion of the future of global economies; it highlights mechanization of labour, potential increases in unemployment, and financial inequality. It next points to cities as centres of both population and economic innovation and experimentation. A Wise City, the paper states, will be a hub of innovation that uses economic predistribution—where assets are equally distributed prior to government taxation and redistribution—to maximize quality of life for its citizens.
Predistribution in Europe: Pilot Projects
Universal Basic Income (UBI) is one example of a predistribution policy. After touching on UBI’s history and current popularity, Coll summarizes European projects in Finland, Utrecht, and Barcelona in order to highlight city-based predistribution experiments. Coll adds that while basic income is defined as unconditional cash payments, none of these pilots fit that definition: they all target participants who are currently, or were at some time, unemployed or low-income.
Finland’s project began in January 2017, and reduces the bureaucracy involved in social security services. It delivers an unconditional (in the sense of non-means-tested and non-work-tested after the program begins) income of 560 €/month for 2,000 randomly selected unemployed persons for two years. Eventual analysis will consist of a comparison with a larger control group of 175,000 people, and the pilot is a public initiative.
The city of Utrecht and Utrecht University designed an experiment which would also last two years, and would provide basic income of 980 €/month to participants already receiving social assistance. The evaluation would assess any change in job seeking, social activity, health and wellness, and an estimate of how much such a program would cost to implement in full. The author comments that the program was suspended by the Netherlands Ministry of Social Affairs, and the pilot is currently under negotiation.
Barcelona has begun an experiment with 1,000 adult participants in a particularly poor region of the city, who must have been social services recipients in the past. “B-Mincome” offers a graduated 400-500 €/month income depending on the household. After two years, the pilot will be assessed by examining labour market reintegration, including self-employment and education, as well as food security, health, wellbeing, social networks, and community participation. Because the income is household-based, and not paid equally to each individual, it is not a Basic Income, but the results could still provide useful evidence for the possible effects of a future Basic Income.
The Implications
Coll identifies several key takeaways from a comparison of these projects. None of the experiments assess the potential behavioural change in rich or middle class basic income recipients. In addition, multi-level governance may cause problems for basic income pilots, but these issues may be mitigated as more evidence assessing the effectiveness of UBI builds from city-driven programs. Coll also acknowledges that all of the experiments listed in his paper are from affluent regions.
In conclusion, the author argues that UBI is a necessary step to alleviate economic inequality. While cities are experimenting with the best ways to implement UBI, they are often not real UBI trials (as they are not universal), and they do not always take an individual-based approach; however, they are nevertheless useful components of the Wise City model.
More information at:
Josep M. Coll, “Why Wise Cities? Conceptual Framework,” Colección Monografı́as CIDOB, October 2016
Josep M. Coll, “Wise Cities & the Universal Basic Income: Facing the Challenges of Inequality, the 4th Industrial Revolution and the New Socioeconomic Paradigm,” Notes internacionals CIDOB no. 183, November 2017
