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The implications of UBI on the utility function and tax revenue: Further calibrating of basic income effects

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  • Neumärker, Bernhard
  • Weinel, Jette

Abstract

Economic modeling of Universal Basic Income (UBI) often fails to consider how individuals' utility calculations shift with unconditional transfers. In this paper we further develop the model of our previous paper - The Implications of UBI on Utility Functions and Tax Revenue (Neumärker, B., Weinel, J., 2022). We contend that, while traditional fiscal models rely on an additively separable relationship between consumption and labor, the utility calculation for individuals influenced by UBI is better represented by a multiplicative relationship. This shift arises from the time sovereignty afforded by UBI, empowering individuals to become selfdetermined, creative, and intrinsically motivated. We explore the implications of the UBIadapted utility function on tax revenue. Specifically, we analyze the consumption tax revenue curve under UBI (multiplicative preferences) versus a means-tested welfare system (additive separable preferences).

Suggested Citation

  • Neumärker, Bernhard & Weinel, Jette, 2024. "The implications of UBI on the utility function and tax revenue: Further calibrating of basic income effects," The Constitutional Economics Network Working Papers 01-2024, University of Freiburg, Department of Economic Policy and Constitutional Economic Theory.
    • Handle: RePEc:zbw:cenwps:297978
    DOI: 10.6094/GWP/2024-01
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    Keywords

    Basic Income; Laffer Curve; Utility Function; Consumption Tax; Time sovereignty; Intrinsic Motivation;
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