DP10710 Means testing versus basic income: the (lack of) political support for a universal allowance

Author(s): Helmuth Cremer, Kerstin Roeder
Publication Date: July 2015
Keyword(s): basic income, means testing, political support
JEL(s): D3, D7, H2, H5
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=10710

This paper studies the political economy of a basic income (BI) versus a means tested welfare scheme. We show in a very simple setting that if society votes on the type of system, its generosity as well as the ?severity? of means testing (if any), a BI system could only emerge in the political equilibrium under very strong and empirically implausible conditions. Instead, the political process leads to a means tested system. The necessity to draw political support does affect the design of the system, but it only implies that means testing becomes less severe so that benefits are extended also to the middle classes. However, a fully universal system is rejected by a majority.