Discussion Paper Details

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Title: Universal Basic Income: Inspecting the Mechanisms

Author(s): Nir Jaimovich, Itay Saporta-Eksten, Ofer Setty and Yaniv Yedid-Levi

Publication Date: February 2022

Keyword(s): Inequality, labor force participation and universal basic income

Programme Area(s): Labour Economics and Macroeconomics and Growth

Abstract: We consider the aggregate and distributional impact of Universal Basic Income (UBI). We develop a model to study a wide range of UBI programs and financing schemes and to highlight the key mechanisms behind their impact. The most crucial channel is the rise in distortionary taxation (required to fund UBI) on labor force participation. Second in importance is the decline in self-insurance due to the insurance UBI provides, resulting in lower aggregate capital. Third, UBI creates a positive income effect lowering labor force participation. Alternative tax-transfer schemes mitigate the impact on labor force participation and the cost of UBI.

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Bibliographic Reference

Jaimovich, N, Saporta-Eksten, I, Setty, O and Yedid-Levi, Y. 2022. 'Universal Basic Income: Inspecting the Mechanisms'. London, Centre for Economic Policy Research.