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Is funding a large universal basic income feasible? A quantitative analysis of UBI with endogenous labour supply

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  • Ghatak, Maitreesh
  • Jaravel, Xavier

Abstract

This article addresses a key point of contention in the ongoing UBI debate: given the way labour supply responds to tax changes, is it possible to fund a large UBI using income taxes? Using recent empirical estimates and quantitative tools from the public economics literature, we assess what level of UBI may be funded given the fall in labour supply that could be induced by the required larger taxes. Despite a prevalent belief that a large UBI would be fiscally irresponsible, we find that it is possible to fund a large annual UBI over £11,000 per person, that it could be funded through a 45% flat tax, but that increasing taxes on the most affluent alone would be insufficient. Our findings highlight an important tension: a large UBI is possible, but it requires large tax rates, including for those at the bottom of the income distribution.

Suggested Citation

  • Ghatak, Maitreesh & Jaravel, Xavier, 2020. "Is funding a large universal basic income feasible? A quantitative analysis of UBI with endogenous labour supply," LSE Research Online Documents on Economics 108533, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:108533
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    File URL: http://eprints.lse.ac.uk/108533/
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    References listed on IDEAS

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    1. Widerquist Karl, 2017. "The Cost of Basic Income: Back-of-the-Envelope Calculations," Basic Income Studies, De Gruyter, vol. 12(2), pages 1-13, December.
    2. Emmanuel Saez, 2001. "Using Elasticities to Derive Optimal Income Tax Rates," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(1), pages 205-229.
    3. Maitreesh Ghatak & François Maniquet, 2019. "Universal Basic Income: Some Theoretical Aspects," Annual Review of Economics, Annual Reviews, vol. 11(1), pages 895-928, August.
    4. Hilary Hoynes & Jesse Rothstein, 2019. "Universal Basic Income in the United States and Advanced Countries," Annual Review of Economics, Annual Reviews, vol. 11(1), pages 929-958, August.
    5. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 38(2), pages 175-208.
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    Cited by:

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    2. Colombino, Ugo & Islam, Nizamul, 2022. "The "Robot Economy" and Optimal Tax-Transfer Reforms," IZA Discussion Papers 15198, Institute of Labor Economics (IZA).
    3. Ugo Colombino & Nizamul Islam, 2022. "The “Robot Economy†and optimal tax-transfer reforms," CHILD Working Papers Series 101 JEL Classification: H, Centre for Household, Income, Labour and Demographic Economics (CHILD) - CCA.

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    More about this item

    Keywords

    poverty; inequality; redistribution; taxation; welfare;
    All these keywords.

    JEL classification:

    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • N0 - Economic History - - General

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