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Basic Income and Negative Income Tax: A Comparison with a Simulation Model

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  • Honkanen Pertti

    (Research Department, Finnish Social Insurance Institution, P.O. Box 450, Helsinki 00101, Finland)

Abstract

An explicit unconditional basic income linked with a proportional tax rate and corresponding negative income tax schedule are generally thought to produce an equal distribution of incomes. They are so to say mathematically uniform systems. If we try to implement these schedules on an existing system of social transfers and taxes, the results may nevertheless be different. One problem is that taxes are generally calculated on yearly basis but social transfers are paid on monthly or even daily basis. There can be also other differences in the implementation. In this paper a simulation experiment with the Finnish tax and transfer system is presented. Two levels of basic income are defined: a normal basic income for adults over 18 years and a bit higher basic income (basic pension) for pensioners. Two alternative simulations are made: one corresponding to an unconditional basic income model and the other corresponding to the idea of negative income tax. Then the distributional effects and various transfer and income flows are studied.

Suggested Citation

  • Honkanen Pertti, 2014. "Basic Income and Negative Income Tax: A Comparison with a Simulation Model," Basic Income Studies, De Gruyter, vol. 9(1-2), pages 119-135, December.
    • Handle: RePEc:bpj:bistud:v:9:y:2014:i:1-2:p:119-135:n:8
    DOI: 10.1515/bis-2014-0015
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    References listed on IDEAS

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    1. Harvey Philip L., 2006. "The Relative Cost of a Universal Basic Income and a Negative Income Tax," Basic Income Studies, De Gruyter, vol. 1(2), pages 1-24, December.
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    4. Markku Ikkala, 2012. "Finland: Institutional Resistance of the Welfare State against a Basic Income," Exploring the Basic Income Guarantee, in: Richard K. Caputo (ed.), Basic Income Guarantee and Politics, chapter 0, pages 63-81, Palgrave Macmillan.
    5. Sutherland H & Callan T, 1996. "Comparative Analysis of Basic Income Proposals: prospects for the use of national tax-benefit models in five European countries," Microsimulation Unit Research Notes MU/RN/21, Microsimulation Unit at the Institute for Social and Economic Research.
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