The Institute for Policy Research (IPR) at the University of Bath has released a new microsimulation report as part of an ongoing project examining the case for basic income in the UK.
'Exploring the Distributional and Work Incentive Effects of Plausible Illustrative Basic Income Schemes'.
Among the many concerns about basic income, two of the most commonly expressed are that it would have undesirable distributional consequences (by failing adequately to compensate the recipients of withdrawn benefits) and that it would erode work incentives (via higher tax levels). This paper addresses these concerns, building on our previous working paper 'The Fiscal and Distributional Implications of Alternative Universal Basic Income Schemes in the UK' in two main ways:
• By exploring the distributional consequences in greater depth.
• By exploring outcomes of UBI schemes in relation to static financial work incentives.
We examine three schemes, argued to be the most plausible of those modelled in the previous working paper, and pitched at three levels of generosity.
The report makes a number of original contributions to the literature. In terms of the distributional consequences of the schemes modelled here, we determine the proportions of households in different income and demographic groups that would expect to gain or lose out financially. The proportions of households gaining and losing from reform is important, as positive distributional effects on aggregate can mask significant losses for some households, including the most vulnerable. Another major contribution is that we analyse the schemes’ distributional consequences with respect to the characteristics of disability status and gender at the individual and household levels, going beyond the ‘standard’ distributional categories presented in existing studies.
Turning to our contribution in relation to financial work incentives, we construct indicators of ‘participation tax rates’ (PTRs) and ‘marginal effective tax rates’ (METRs) which describe financial incentives to work at all, and financial incentives to progress in work or increase work effort marginally, respectively. We also construct indicators of the proportions of households facing improved, deteriorating or unchanged financial work incentives as a result of the reforms.
The report, along with the previous working paper, can be downloaded from http://www.bath.ac.uk/ipr/publications/index.html.
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