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On the Time Consistency of Universal Basic Income

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  • Jang, Youngsoo

Abstract

I study how government commitment shapes optimal Universal Basic Income (UBI) by characterizing the equilibria of a dynamic game between heterogeneous individuals and a benevolent government. I find that commitment, throughout the transition, influences how the government balances income redistribution through taxes and UBI with pecuniary externalities from changes in factor income composition. In a calibrated economy, commitment substantially improves welfare by implementing considerable UBI that incurs long-run welfare losses but drives front-loaded welfare gains through income redistribution facilitated by reduced precautionary savings. Without commitment, the government obtains smaller welfare improvements, overlooking the impacts of long-run UBI on the short-run economy.

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  • Jang, Youngsoo, 2023. "On the Time Consistency of Universal Basic Income," MPRA Paper 117674, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:117674
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    References listed on IDEAS

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    More about this item

    Keywords

    Universal Basic Income; Time Inconsistency; Taxes and Transfers; Heterogeneous Agents; Incomplete Markets;
    All these keywords.

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government

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