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The macroeconomic effects of universal basic income programs

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  • Luduvice, André Victor Doherty

Abstract

I develop a heterogeneous agents overlapping generations model to assess the welfare effects of substituting the US income security system with a UBI policy. I study two counterfactual exercises: an expenditure-neutral reform and a large, policy-oriented UBI reform with a transfer equivalent to $1000 monthly, both financed by changes in the consumption tax. The first exercise has a moderate fiscal impact, induces increases in the aggregate output and employment, and reduces earnings and wealth inequality. The second exercise requires a large increase in the consumption tax rate, decreases employment and output, and increases earnings inequality, which moves sideways for wealth. In both cases, disposable income and consumption are more equally distributed, with less accrual at the top. The two economies generate positive welfare gains, with those for the generous UBI economy being larger.

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  • Luduvice, André Victor Doherty, 2024. "The macroeconomic effects of universal basic income programs," Journal of Monetary Economics, Elsevier, vol. 148(C).
  • Handle: RePEc:eee:moneco:v:148:y:2024:i:c:s0304393224000680
    DOI: 10.1016/j.jmoneco.2024.103615
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    More about this item

    Keywords

    Universal basic income; Social insurance; Overlapping generations; Labor supply;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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