Income Guarantees and the Equity-Efficiency Tradeoff

This chapter examines the tradeoffs inherent in guaranteed income proposals. Its per¬spective is international, using standardized income data across nations and asking whether economic efficiency suffers when governments make greater efforts to protect the poor. It is recognized that this is not a perfect test of the guaranteed income plan, in large part because we are not actually testing anything about a guaranteed income plan. Nonetheless, we are testing one of the main issues surrounding guaranteed income plans, the equityefficiency tradeoff raised by Okunif governments do provide greater income supports, will economic efficiency suffer? The first section provides a brief history of the rise and fall of guaranteed in¬come plans. Then the Luxembourg Income Study (LIS), the main database for the empirical work of this chapter, is described. Using the LIS we see how governments of different countries affect income equality, and how this effort has changed over time. Section 4 examines whether those countries putting more fiscal effort into maintaining the incomes of its citizens operate less efficiently. Finally, Section 5 summarizes our findings and concludes.