## 11. Trading Off Coverage and Generosity of Existing Transfers: Country D

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### I. Introduction
- Purpose: review main features of a universal basic income (UBI) and propose a framework for policy discussion using an analytical approach and static microsimulations (no behavioral responses).
- Core assessment dimensions: generosity, coverage, and progressivity.
- Simulation benchmark example: a UBI calibrated at 25 percent of median market income per capita would have a significant favorable impact on distributional outcomes, but design tradeoffs and resource-allocation choices are crucial.

### II. Definition and Debate
- Operational definition used:
  - A benefit regularly (e.g., yearly or monthly) paid out in cash unconditionally to all residents.
  - All residents receive the same amount, benchmarked as a fraction of median equivalent income.
  - The UBI could complement or substitute existing social spending depending on financing.
- Key definitional dimensions:
  - Why? Goals: tackle poverty and inequality; broaden coverage; a one-time endowment can improve equality of opportunity.
  - Who? Universality: questions on citizens vs. residents, participation/belonging criteria and verification.
  - What? How much: often benchmarked as a fraction of a country poverty line or median income; modulation by age/type (children, adults, elderly) and cash vs. in-kind are design choices.
  - When? Timing: regular (monthly/yearly) vs. one-off.
- Illustrative experiments discussed:
  - Finland: monthly cash benefit of 560 euros for eligible unemployed adults.
  - Kenya (GiveDirectly): 22 dollars/month for 12 years to every adult in one village.
  - Stockton California: plan to redistribute a monthly cash benefit to "a select number of residents".
  - Alaska: oil dividend scheme in place since 1982 noted as the only lasting large-scale universal benefit to date.
  - Dauphin (1974–1977): monthly stipend of 60 percent of the poverty threshold to a tenth of its population.
  - India, USA, Finland, and Kenya launched UBI-type experiments in 2017.
- Arguments for UBI:
  - Potentially better at addressing poverty than means-tested programs.
  - Simpler administration, increased transparency, reduced capture risk.
  - Can build public support for structural reforms and renew social contract.
  - Relevance to debates on future of work and technological change.
- Arguments against UBI:
  - Fiscal dilemmas: leakages to wealthy households and crowding out of scarce resources.
  - Potential negative impact on work incentives and resulting inefficiencies.
  - Opportunity cost relative to other priorities.

### III. Weaknesses and Limitations of Existing Safety Nets
- Generosity and spending levels:
  - Public spending on social assistance programs varies significantly by region and country.
  - Public spending averages: 2.7 percent of GDP for EU countries; 1.6 percent of GDP in upper middle income countries; 1.4 percent of GDP in lower middle income countries; 1.5 percent of GDP in low-income countries.
- Coverage and leakage:
  - Under-coverage of poorest quintile is largest in low-income countries.
  - Significant coverage of high-income groups indicates leakage to better-off households.
  - Example: one third of total spending on means-tested assistance programs in the EU goes to the top six income deciles.
- Non-take-up:
  - Conservative estimates of non-take-up rates of monetary benefits in European countries are above 40 percent.
  - Factors: stigma, transaction costs, information barriers, funding constraints, and benefit generosity.
  - Evidence suggests transaction costs may be more relevant than stigma.
- Distortions and disincentives:
  - Effective participation taxes can vary between 30 and 85 percent in European countries.
  - In 2015, average marginal effective tax rate (METR) in EU27 countries on earned income in the bottom quartile was 28 percent, increasing on average by 2 percent between 2011 and 2015.
- Implementation caveats:
  - Universal programs are not immune to participation obstacles; universal child benefits and short-lived UBI-type schemes in Iran and Mongolia illustrate implementation and financing risks.

### IV. Analytical Approach for Assessing UBI
- Framework focuses on distributional impact and analyzes financing and transfer effects together.
- Three key dimensions:
  - Generosity: magnitude of transfers as source of income (size of resource envelope).
  - Coverage: share of individuals covered, focus on bottom of income distribution.
  - Progressivity: share of resources captured across the income distribution.
- Primary tradeoffs:
  - Leakages to richer households vs. effective coverage of poor households.
  - Generosity vs. potential work disincentives.
  - Fiscal cost vs. alternative use of available resources.
  - Implementation challenges vs. objectives.
- Comparative implications by current safety-net performance:
  - Well-performing safety nets (high coverage, high progressivity): need for UBI is not obvious.
  - Poorly performing safety nets (low coverage, low progressivity): UBI could help if resources can be raised and implementation issues managed; substitution risks for current beneficiaries must be considered.
  - High coverage but low progressivity: a UBI could improve distributional outcomes at a given fiscal cost if progressivity cannot be improved otherwise.
  - High progressivity but low coverage: moving to a UBI with a fixed envelope could generate large losses for current beneficiaries at the bottom unless the fiscal envelope is expanded.

### V. Country Selection and Assumptions
- Empirical strategy:
  - Use microdata from the Luxembourg Income Study (LIS) archive.
  - Latest year available in Fall 2017 for selected countries.
  - Sample of eight countries chosen to ensure heterogeneity in geography, development stage, generosity of current spending, and progressivity of non-contributory transfers.
- Rationale: anchors discussion to policy-relevant dimensions and accounts for actual strengths and weaknesses of existing social protection systems.
- Sample observation: advanced economies in the selected sample spend on average three times more than emerging economies on non-contributory transfers.

### Simulation approach and limitations
- Simulations are partial static equilibrium exercises: only households are considered; behavioral responses are not accounted for.
- Results are short-term assessments and do not account for household behavioral responses.
- Data source: Harmonized Luxembourg Income Study (LIS) microdata covering about 50 countries; country microdata come from household surveys and are subject to limitations (e.g., underrepresentation at the top and bottom of the income distribution).
- Progressivity proxy: ratio of the share of total spending received by the bottom 40 percent to the share received by the top 40 percent. Coverage refers to the percentage of households in the bottom 40 percent receiving any transfer. Marker size indicates magnitude of spending as percent of GDP.

### Behavioral responses and structural heterogeneity
- Behavioral responses to a UBI depend on:
  - labor supply elasticities on the intensive and extensive margins, and
  - tax rates (especially participation tax rates).
- Heterogeneous responses:
  - Prime-aged men and singles’ labor supply is generally more inelastic.
  - Married women with children show the largest labor supply elasticities.
- Evidence cited:
  - OECD (2017b): UBI would reduce participation taxes for singles with two children and one-earner couples; would increase participation taxes for two-earner couples.
  - Immervoll et al. (2007): aggregate inefficiency losses may be sizeable if a UBI complements highly distortionary existing safety nets in selected European countries.
  - Colombino et al. (2008): both a UBI and non-means-tested in-work benefits financed by progressive taxes would perform better than current safety nets in selected European countries.
  - IMF (2017) general equilibrium analysis: a UBI of one percent of GDP in the US would have a negligible effect on total hours worked and a positive impact on total demand, depending on financing.

### Gross fiscal cost and redistributive impacts (UBI calibrated at 25 percent of net median market income per capita)
- Calibration:
  - Yearly UBI amount = 25 percent of the country net median market income per capita (earned market income minus direct taxes paid).
  - Distributed to all residents without conditions or targeting.
- Aggregate impacts reported (Table 1: Gross Fiscal Cost; Change in Gini; Change in Poverty Rate):
  - Country A: Gross Fiscal Cost 4.6% (percent GDP); Change in Gini -0.05; Change in Poverty Rate -11.6
  - Country B: Gross Fiscal Cost 3.5% (percent GDP); Change in Gini -0.06; Change in Poverty Rate -10.4
  - Country C: Gross Fiscal Cost 6.8% (percent GDP); Change in Gini -0.04; Change in Poverty Rate -6.3
  - Country D: Gross Fiscal Cost 3.7% (percent GDP); Change in Gini -0.06; Change in Poverty Rate -12.0
  - Country E: Gross Fiscal Cost 4.9% (percent GDP); Change in Gini -0.04; Change in Poverty Rate -6.9
  - Country F: Gross Fiscal Cost 2.3% (percent GDP); Change in Gini -0.05; Change in Poverty Rate -10.8
  - Country G: Gross Fiscal Cost 6.7% (percent GDP); Change in Gini -0.04; Change in Poverty Rate -6.0
  - Country H: Gross Fiscal Cost 6.4% (percent GDP); Change in Gini -0.05; Change in Poverty Rate -10.1
- Summary conclusions:
  - A UBI at this calibration would substantially reduce inequalities (around -5 percentage points of the Gini index) and poverty, but at substantial gross fiscal cost.
  - Reduction in poverty would be higher in emerging economies than in advanced ones in the sample (-10.4 percentage points on average vs. -7.5).
  - Gross fiscal cost on average higher in richer economies than in poorer ones (6.5 percent of GDP vs. 3.8).

### Three financing scenarios and microsimulation calibration on current non-contributory transfers
- Calibration of UBI fiscal envelope using current observed spending for non-contributory programs.
- Three financing options with UBI net fiscal cost set to 0:
  1. UBI substitutes existing non-contributory transfers.
  2. Direct income taxes are increased (UBI complements current programs).
  3. An additional proportional tax on disposable income is levied (UBI complements current programs).
- Fiscal envelope and existing transfers (Table 2: Fiscal Envelope; Coverage bottom two deciles; Coverage top two deciles; Share of Total Spending bottom two deciles; Share of Total Spending top two deciles):
  - Country A: Fiscal Envelope 0.70% (percent of GDP); Coverage bottom two deciles 55%; top two deciles 5%; Share of Total Spending bottom two deciles 39%; top two deciles 7%
  - Country B: Fiscal Envelope 0.20% (percent of GDP); Coverage bottom two deciles 16%; top two deciles 6%; Share of Total Spending bottom two deciles 28%; top two deciles 17%
  - Country C: Fiscal Envelope 2.30% (percent of GDP); Coverage bottom two deciles 66%; top two deciles 19%; Share of Total Spending bottom two deciles 48%; top two deciles 6%
  - Country D: Fiscal Envelope 1.00% (percent of GDP); Coverage bottom two deciles 63%; top two deciles 28%; Share of Total Spending bottom two deciles 23%; top two deciles 26%
  - Country E: Fiscal Envelope 0.80% (percent of GDP); Coverage bottom two deciles 46%; top two deciles 17%; Share of Total Spending bottom two deciles 41%; top two deciles 8%
  - Country F: Fiscal Envelope 3.10% (percent of GDP); Coverage bottom two deciles 65%; top two deciles 13%; Share of Total Spending bottom two deciles 16%; top two deciles 11%
  - Country G: Fiscal Envelope 5.20% (percent of GDP); Coverage bottom two deciles 84%; top two deciles 36%; Share of Total Spending bottom two deciles 39%; top two deciles 7%
  - Country H: Fiscal Envelope 1.50% (percent of GDP); Coverage bottom two deciles 61%; top two deciles 20%; Share of Total Spending bottom two deciles 38%; top two deciles 9%
- Key country-case insights:
  - Country B (L-L-L: low coverage, low progressivity, low generosity): substituting current programs with a UBI (with a fiscal envelope of 0.2 percent of GDP) would yield large gains in coverage at the bottom without significant welfare gains or losses; indicates inadequacy of current generosity and fiscal envelope.
  - Country G (H-H-H: high coverage, high progressivity, high generosity): substituting with a UBI would reduce distributional impact, with losers bunched at the bottom and gainers at the top; non-contributory programs estimated at 5.2 percent of GDP suggests debate on complementary vs. substitute UBI and how to raise additional resources.
  - Country C vs Country D: both have similar coverage in bottom two deciles (~65%), but Country C has higher generosity (2.3 percent of GDP) and progressivity; replacing current programs with a UBI in Country C could lead to more than 60 percent of households in bottom two deciles incurring an average welfare loss of 34 percent; financing a complementary UBI through an additional proportional income tax would preserve UBI progressivity and increase coverage but may risk losses for households currently covered depending on resource sufficiency.
- Implementation and mobilization considerations:
  - In many emerging and poor economies, two key considerations: (i) whether and how additional resources could be raised, and (ii) whether significant implementation issues would hamper introduction of a UBI.
  - Even if financed by a proportional income tax, average net gains would be substantially higher for poorer households; financing by progressive direct taxes would enhance progressivity.

### Tradeoffs, policy implications and design considerations
- Policymakers face tradeoffs along key dimensions:
  i. coverage at the bottom vs. leakages to richer households,
  ii. generosity of transfers vs. incentives and economic distortions,
  iii. fiscal cost vs. alternative use of scarce fiscal resources,
  iv. reconciling objectives with implementation challenges.
- Determinants of saliency of tradeoffs:
  - A country’s position in the coverage/generosity/progressivity space, capacity to raise resources progressively and sustainably, and administrative rollout ability.
- Efficiency and equity assessment:
  - UBI impacts must be assessed relative to alternative policy packages, accounting for distortionary effects of taxes and transfers and overall safety net performance.
- Broader considerations beyond static simulations:
  - Environments with decreasing job security and increasing income volatility may prioritize expanding insurance mechanisms for the unemployed.
  - UBI may be debated to generate public support while protecting vulnerable households from undesired side effects of structural reforms.
  - Policymakers should evaluate UBI against alternative feasible options given fiscal constraints and implementation challenges.

*Source: wp18273 - 11. Trading Off Coverage and Generosity of Existing Transfers: Country D (Authors’ calculations on LIS microdata).*

### References .............................................................................................................

### wp18273 - References

### Tables
- 1. Gross Fiscal Cost and Redistributive Impacts of a UBI ................................................................................ 16
- 2. Calibration of a UBI on Current Non-Contributory Transfers and Coverage and Progressivity of 
 Existing Programs ...................................................................................................................................................... 17

### Figures
- 1. UBI Key Features and Scholar Position Examples ............................................................................................ 6
- 2. Social Assistance Spending – Middle and Low-Income Countries ............................................................ 8
- 3. Social Assistance Spending – European Countries .......................................................................................... 8
- 4. Coverage of Social Assistance Programs by Income Level ........................................................................... 9
- 5. Incidence of Means-Tested Social Benefits (excluding pensions) – Average EU 28 ........................... 9
- 6. Analytical Framework ............................................................................................................................................... 12
- 7. Generosity, Progressivity and Coverage of Non-Contributory Transfers ............................................ 14
- 8. Low Generosity-Progressivity-Coverage of Existing Transfers vs. UBI: Country B ............................ 18
- 9. High Generosity-Progressivity-Coverage of Existing Transfers vs. UBI: Country G .......................... 19
- 10. Trading Off Coverage and Progressivity of Existing Transfers: Country C ........................................ 20

*Source: wp18273 - References (page listing of tables and figures).*

### 11. Trading Off Coverage and Generosity of Existing Transfers: Country D ............................................ 21

### 11. Trading Off Coverage and Generosity of Existing Transfers: Country D

### I. Introduction
- Purpose: review main features of a universal basic income (UBI) and propose a framework for policy discussion using an analytical approach and static microsimulations (no behavioral responses).
- Core assessment dimensions: generosity, coverage, and progressivity.
- Simulation benchmark example: a UBI calibrated at 25 percent of median market income per capita would have a significant favorable impact on distributional outcomes, but design tradeoffs and resource-allocation choices are crucial.

### II. Definition and Debate
- Operational definition used in this paper:
  - A benefit regularly (e.g., yearly or monthly) paid out in cash unconditionally to all residents.
  - All residents receive the same amount, benchmarked as a fraction of median equivalent income.
  - The UBI could complement or substitute existing social spending depending on financing.
- Key definitional dimensions highlighted:
  - Why? Goals: tackle poverty and inequality; broaden coverage; a one-time endowment can improve equality of opportunity.
  - Who? Universality: questions on citizens vs. residents, participation/belonging criteria and verification.
  - What? How much: often benchmarked as a fraction of a country poverty line or median income; modulation by age/type (children, adults, elderly) and cash vs. in-kind are design choices.
  - When? Timing: regular (monthly/yearly) vs. one-off.
- Illustrative real-world experiment examples (as described in the text):
  - Finland: government financed a monthly cash benefit of 560 euros for eligible unemployed adults.
  - Kenya (GiveDirectly): 22 dollars/month for 12 years to every adult in one village.
  - Stockton California: plan to redistribute a monthly cash benefit to "a select number of residents".
  - Alaska's oil dividend scheme in place since 1982 is noted as the only lasting large-scale universal benefit to date.
  - Historical/other experiments: Dauphin (1974–1977) gave a monthly stipend of 60 percent of the poverty threshold to a tenth of its population; India, USA, Finland, and Kenya launched UBI-type experiments in 2017.
- Arguments for UBI:
  - Potentially better at addressing poverty than means-tested programs.
  - Simpler administration, increased transparency, reduced capture risk.
  - Can build public support for structural reforms and renew social contract.
  - Relevance to debates on future of work and technological change.
- Arguments against UBI:
  - Fiscal dilemmas: leakages to wealthy households and crowding out of scarce resources.
  - Potential negative impact on work incentives and resulting inefficiencies.
  - Opportunity cost relative to other priorities.

### III. Weaknesses and Limitations of Existing Safety Nets
- Generosity and spending levels:
  - Public spending on social assistance programs varies significantly by region and country.
  - Public spending is 2.7 percent of GDP on average for EU countries, against 1.6, 1.4, and 1.5 percent of GDP on average in upper middle income, lower middle income and low-income countries respectively.
- Coverage and leakage problems:
  - Under-coverage of poorest quintile is largest in low-income countries.
  - Significant coverage of high-income groups indicates leakage to better-off households.
  - Example: one third of total spending on means-tested assistance programs in the EU goes to the top six income deciles.
- Non-take-up:
  - Conservative estimates of non-take-up rates of monetary benefits in European countries are above 40 percent.
  - Factors: stigma, transaction costs, information barriers, funding constraints, and benefit generosity.
  - Evidence suggests transaction costs may be more relevant than stigma.
- Distortions and disincentives under current systems:
  - Effective participation taxes can vary between 30 and 85 percent in European countries.
  - In 2015, the average marginal effective tax rate (METR) in EU27 countries on earned income in the bottom quartile was 28 percent, increasing on average by 2 percent between 2011 and 2015.
- Implementation caveats:
  - Universal programs are not immune to participation obstacles; universal child benefits and short-lived UBI-type schemes in Iran and Mongolia illustrate implementation and financing risks.

### IV. Analytical Approach for Assessing UBI
- Framework focuses on distributional impact and requires analyzing both financing and transfer effects together.
- Three key dimensions (visualized in the paper):
  - Generosity: magnitude of transfers as source of income (size of resource envelope).
  - Coverage: share of individuals covered, focus on bottom of income distribution.
  - Progressivity: share of resources captured across the income distribution (programs that channel more to vulnerable households are progressive).
- Primary tradeoffs policymakers face:
  - Leakages to richer households vs. effective coverage of poor households.
  - Generosity vs. potential work disincentives.
  - Fiscal cost vs. alternative use of available resources.
  - Implementation challenges vs. objectives.
- Comparative implications by current safety-net performance (framework quadrants):
  - Well-performing safety nets (high coverage, high progressivity): need for UBI is not obvious.
  - Poorly performing safety nets (low coverage, low progressivity): UBI could help if resources can be raised and implementation issues managed; substitution risks for current beneficiaries must be considered.
  - High coverage but low progressivity: a UBI could improve distributional outcomes at a given fiscal cost if progressivity cannot be improved otherwise (example: energy subsidies).
  - High progressivity but low coverage: moving to a UBI with a fixed envelope could generate large losses for current beneficiaries at the bottom unless the fiscal envelope is expanded.

### V. Bringing the Analytical Approach to the Data — A. Country Selection and Assumptions
- Empirical strategy:
  - Use microdata from the Luxembourg Income Study (LIS) archive.
  - Latest year available in Fall 2017 for selected countries.
  - Sample of eight countries chosen to ensure heterogeneity in geography, development stage, generosity of current spending, and progressivity of non-contributory transfers.
- Rationale for using actual country data:
  - Anchors discussion to policy-relevant dimensions and accounts for actual strengths and weaknesses of existing social protection systems.
- Notable sample observation:
  - In the selected sample, advanced economies spend on average three times more than emerging economies on non-contributory transfers.

*Source: wp18273 - 11. Trading Off Coverage and Generosity of Existing Transfers: Country D*

### 1.1 percent of GDP) and the coverage of households in the bottom two income quintiles is

### wp18273 - 1.1 percent of GDP) and the coverage of households in the bottom two income quintiles is

### Simulation approach and limitations
- Simulations are partial static equilibrium exercises: only households are considered (no firms or production side of the economy) and behavioral responses (e.g., changes in labor supply or consumption patterns) are not accounted for.
- Results should be considered as short-term assessments and do not account for household behavioral responses.
- Data source: Harmonized Luxembourg Income Study (LIS) microdata covering about 50 countries; country microdata come from household surveys and are subject to limitations (e.g., underrepresentation at the top and bottom of the income distribution).
- Note on progressivity proxy: The ratio of the share of total spending received by the bottom 40 percent of income distribution to the share received by the top 40 percent serves as a proxy for progressivity. Coverage refers to the percentage of households in the bottom 40 percent receiving any transfer. Marker size indicates magnitude of spending as percent of GDP.

### Behavioral responses and structural heterogeneity
- Behavioral responses to a UBI will reflect:
  - labor supply elasticities on the intensive and extensive margins, and
  - tax rates (especially participation tax rates).
- Responses will vary across income levels and individual types.
- Empirical patterns noted:
  - Prime-aged men and singles’ labor supply is generally more inelastic.
  - Married women with children show the largest labor supply elasticities.
- OECD (2017b) evidence (sample of ten OECD countries) indicates:
  - A UBI would reduce participation taxes for singles with two children and one-earner couples (with no or two children).
  - A UBI would increase participation taxes for two-earner couples.
- Micro-simulation and partial-equilibrium model findings cited:
  - Immervoll et al. (2007): aggregate inefficiency losses may be sizeable if a UBI complements highly distortionary existing safety nets in selected European countries.
  - Colombino et al. (2008): both a UBI and non-means-tested in-work benefits financed by progressive taxes would perform better than current safety nets in selected European countries.
- IMF (2017) general equilibrium analysis: a UBI would not necessarily generate lower growth compared to other programs (example: introducing a UBI of one percent of GDP in the US would have a negligible effect on total hours worked and a positive impact on total demand, depending on financing).

### Gross fiscal cost and redistributive impacts (UBI calibrated at 25 percent of net median market income per capita)
- Calibration details:
  - Yearly UBI amount = 25 percent of the country net median market income per capita (earned market income minus direct taxes paid).
  - Distributed to all residents without conditions or targeting.
- Aggregate impacts reported (Table 1: Gross Fiscal Cost; Change in Gini; Change in Poverty Rate):
  - Country A: Gross Fiscal Cost 4.6% (percent GDP); Change in Gini -0.05; Change in Poverty Rate -11.6
  - Country B: Gross Fiscal Cost 3.5% (percent GDP); Change in Gini -0.06; Change in Poverty Rate -10.4
  - Country C: Gross Fiscal Cost 6.8% (percent GDP); Change in Gini -0.04; Change in Poverty Rate -6.3
  - Country D: Gross Fiscal Cost 3.7% (percent GDP); Change in Gini -0.06; Change in Poverty Rate -12.0
  - Country E: Gross Fiscal Cost 4.9% (percent GDP); Change in Gini -0.04; Change in Poverty Rate -6.9
  - Country F: Gross Fiscal Cost 2.3% (percent GDP); Change in Gini -0.05; Change in Poverty Rate -10.8
  - Country G: Gross Fiscal Cost 6.7% (percent GDP); Change in Gini -0.04; Change in Poverty Rate -6.0
  - Country H: Gross Fiscal Cost 6.4% (percent GDP); Change in Gini -0.05; Change in Poverty Rate -10.1
- Summary conclusions:
  - A UBI at this calibration would substantially reduce inequalities (around -5 percentage points of the Gini index) and poverty, but at substantial gross fiscal cost.
  - Reduction in poverty would be higher in emerging economies than in advanced ones in the sample (-10.4 percentage points on average vs. -7.5).
  - Gross fiscal cost on average higher in richer economies than in poorer ones (6.5 percent of GDP vs. 3.8).

### Three financing scenarios and microsimulation calibration on current non-contributory transfers
- Calibration of UBI fiscal envelope using current observed spending for non-contributory programs (Table 2).
- Three financing options considered with UBI net fiscal cost set to 0:
  1. UBI substitutes existing non-contributory transfers.
  2. Direct income taxes are increased (UBI complements current programs).
  3. An additional proportional tax on disposable income is levied (UBI complements current programs).
- Table 2: Fiscal Envelope and Coverage / Share of Total Spending (bottom two deciles; top two deciles)
  - Country A: Fiscal Envelope 0.70% (percent of GDP); Existing transfers Coverage bottom two deciles 55%; top two deciles 5%; Share of Total Spending bottom two deciles 39%; top two deciles 7%
  - Country B: Fiscal Envelope 0.20% (percent of GDP); Existing transfers Coverage bottom two deciles 16%; top two deciles 6%; Share of Total Spending bottom two deciles 28%; top two deciles 17%
  - Country C: Fiscal Envelope 2.30% (percent of GDP); Existing transfers Coverage bottom two deciles 66%; top two deciles 19%; Share of Total Spending bottom two deciles 48%; top two deciles 6%
  - Country D: Fiscal Envelope 1.00% (percent of GDP); Existing transfers Coverage bottom two deciles 63%; top two deciles 28%; Share of Total Spending bottom two deciles 23%; top two deciles 26%
  - Country E: Fiscal Envelope 0.80% (percent of GDP); Existing transfers Coverage bottom two deciles 46%; top two deciles 17%; Share of Total Spending bottom two deciles 41%; top two deciles 8%
  - Country F: Fiscal Envelope 3.10% (percent of GDP); Existing transfers Coverage bottom two deciles 65%; top two deciles 13%; Share of Total Spending bottom two deciles 16%; top two deciles 11%
  - Country G: Fiscal Envelope 5.20% (percent of GDP); Existing transfers Coverage bottom two deciles 84%; top two deciles 36%; Share of Total Spending bottom two deciles 39%; top two deciles 7%
  - Country H: Fiscal Envelope 1.50% (percent of GDP); Existing transfers Coverage bottom two deciles 61%; top two deciles 20%; Share of Total Spending bottom two deciles 38%; top two deciles 9%
- Key country-case insights:
  - Country B (L-L-L: low coverage, low progressivity, low generosity): substituting current programs with a UBI (given a small fiscal envelope of 0.2 percent of GDP) would yield large gains in coverage at the bottom without significant welfare gains or losses; indicates inadequacy of current generosity and fiscal envelope.
  - Country G (H-H-H: high coverage, high progressivity, high generosity): substituting with a UBI would reduce distributional impact of public policies, with losers bunched at the bottom and gainers at the top; for Country G non-contributory programs estimated at 5.2 percent of GDP in LIS data suggests debate on complementary vs. substitute UBI and how to raise additional resources.
  - Country C vs Country D: both have similar coverage in bottom two deciles (~65%), but Country C has higher generosity (2.3 percent of GDP) and progressivity; replacing current programs with a UBI in Country C could lead to more than 60 percent of households in bottom two deciles incurring an average welfare loss of 34 percent; financing a complementary UBI through an additional proportional income tax would preserve UBI progressivity and increase coverage but may risk losses for households currently covered depending on resource sufficiency.
- Implementation and mobilization considerations:
  - In many emerging and poor economies, two key considerations: (i) whether and how additional resources could be raised, and (ii) whether significant implementation issues would hamper introduction of a UBI.
  - Even if financed by a proportional income tax, average net gains would be substantially higher for poorer households; financing by progressive direct taxes would enhance progressivity.

### Tradeoffs, policy implications and design considerations
- Policymakers face tradeoffs along key dimensions:
  i. coverage at the bottom vs. leakages to richer households,
  ii. generosity of transfers vs. incentives and economic distortions,
  iii. fiscal cost vs. alternative use of scarce fiscal resources,
  iv. reconciling objectives with implementation challenges.
- The position of a country in the coverage/generosity/progressivity space, capacity to raise resources progressively and sustainably, and administrative rollout ability determine the saliency of tradeoffs.
- Efficiency and equity impacts of a UBI cannot be gauged in isolation; one must assess whether a policy package including a UBI would increase or decrease the distortionary impact of government policies and affect overall safety net performance.
- Broader considerations beyond short-term static simulations:
  - In environments with decreasing job security and increasing income volatility, expanding insurance mechanisms for the unemployed may be a priority.
  - UBI may be debated as a means to generate public support while protecting vulnerable households from undesired side effects of structural reforms.
  - Policymakers should evaluate UBI against alternative feasible options given fiscal constraints and implementation challenges.

*Source: Authors’ calculations on LIS microdata.*

### REFERENCES

### REFERENCES

### Foundational works
- Atkinson, Anthony, 1996, “James Meade’s Vision: Full Employment and Social Justice,” National Institute Economic Review, Vol. 157, No. 2, pp. 90-6.
- ______, 2015, Inequality: What can be Done? (Cambridge, MA: Harvard University Press).
- Friedman, Milton, 1968, "The Case for the Negative Income Tax: A View from the Right," in Issues of American Public Policy, ed. by J. H. Bunzel (Englewood Cliffs, NJ: Prentice-Hall).
- Meade, James, 1964, Efficiency, Equality and the Ownership of Property (London: Allen and Unwin).
- Paine, Thomas, 1797, Agrarian Justice.
- Van Parijs, Philippe, 1992, “Competing justifications of basic income” in Introduction to Arguing for Basic Income, ed. by Philippe van Parijs (London: Verso).
- Sen, Amartya, 1992, “The Political Economy of Targeting,” Annual Bank Conference on Development Economics, (Washington: World Bank).

### Empirical studies and working papers
- Bastagli, Francesca, Jessica Hagen-Zanker, Luke Harman, Valentina Barca, Georgina Sturge, Tanja Schmidt, and Luca Pellerano, 2016, “Cash Transfers: What Does the Evidence Say? A Rigorous Review of Program Impact and of the Role of Design and Implementation Features,” ODI Paper (London: Overseas Development Institute).
- Brown, Catilin, Martin Ravallion, and Dominique van de Walle, 2016, “A Poor Means Test? Econometric Targeting in Africa,” NBER Working Paper No. 22919 (Cambridge, MA: National Bureau of Economic Research).
- Brown, James and Herwig Immervoll, 2017, “Mechanics of replacing Benefit Systems with a basic income: Comparative Results from a Microsimulation Approach”, IZA DP. No. 11192.
- Caldes, Natalia, David Coady, and John Maluccio, 2006, “The Cost of Poverty Alleviation Transfer Programs: A Comparative Analysis of Three Programs in Latin America,” World Development, Vol. 34, No. 5, pp. 818–37.
- Colombino, Ugo, Marilena Locatelli, Edlira Narazani, Cathal O’Donoghue, and Isilda Shima, 2008, “Behavioral and Welfare Effects of Basic Income Policies: A Simulation for European Countries,” Euromod Working Paper No. EM5/08 (Essex, United Kingdo: EUROMOD at the Institute for Social and Economic Research).
- Currie Janet, 2006, “The Take-Up of Social Benefits,” in Public Policy and the Income Distribution, ed. by Alan. J. Auerbach, David Card and John M. Quigley (New York: Russell Sage Foundation).
- Demirguc-Kunt, Asli, Leora Klapper, Saniya Ansar, and Aditya Jagati, 2017, “Making It Easier to Apply for a Bank Account: A Study of the Indian Market,” Policy Research Working Paper No. 8205 (Washington: World Bank).
- Dubois, Hans and Anna Ludwinek, 2015, “Access to Social Benefits: Reducing Non-Take-up,” Eurofounds (Luxembourg: Publications Office of the European Union).
- Immervoll, Herwig, Henrik Jacobsen Kleven, Claus Thustrup Kreiner, and Emmanuel Saez, 2007, “Welfare Reform in European Countries: A Microsimulation Analysis,” Economic Journal, Vol. 117 (January), pp. 1–44.
- Kleven, Henrik Jacobsen, and Wojciech Kopczuk, 2011, “Transfer Program Complexity and the Take-Up of Social Benefits,” American Economic Journal: Economic Policy, Vol. 3, pp. 54-90.
- Levy, Horacio, Manos Matsaganis, and Holly Sutherland, 2013, “Towards a European Union Child Basic Income? Within and between Country Effects,” EUROMOD Working Paper No. EM 6/13 Essex, (United Kingdom: EUROMOD).

### Policy discussions and institutional reports
- Coady, David and Delphine Prady, 2018, “Universal Basic Income in Developing Countries: Issues, Options, and Illustration for India,” IMF Working Paper 18/174, (Washington: International Monetary Fund).
- Gandy, Kizzy, Katy King, Pippa Streeter Hurle, Chole Bustin, and Kate Glazebrook, 2016, “Poverty and Decision-Making: How Behavioral Science Can Improve Opportunity in the U.K.” (London: The Behavioral Insights Team).
- International Monetary Fund (IMF), 2017, Fiscal Monitor: Tackling Inequality (Washington).
- ______, 2018a, Fiscal Monitor: Capitalizing on Good Times Chapter 2: Digital Government (Washington).
- ______, 2018b, G20 Report on Future of Work: Measurement and Policy Challenges (Washington).
- OECD, 2017a, “Basic Income as a Policy Option: Can It Add Up?”, OECD Policy Brief on the Future of Work (Paris: Organization for Economic Co-operation and Development).
- ______, 2017b, “Basic Income as a Policy Option: Technical Background Note Illustrating Costs and Distributional Implications for Selected Countries” OECD Policy Brief (Paris: Organization for Economic Co-operation and Development).
- Subramanian, Arvind, 2017, Intervention at the CGD Discussion, “Demonetization, Digital Identity and Universal Basic Income How Big Ideas Are Changing India and What It Means for the World.” https://www.cgdev.org/event/demonetization-digital-identity-and-universal-basic-income-%E2%80%93-how-big-ideas-are-changing-india.
- World Bank, 2015, The State of Social Safety Nets. 2015 (Washington, DC: World Bank Group).

### Data sources and databases
- Luxembourg Income Study (LIS) Database, http://www.lisdatacenter.org (multiple countries; June 2017-October 2017). Luxembourg: LIS.
- Sala-i-Martin, Xavier and Arvind Subramanian, 2013, “Addressing the Natural Resource Curse: An Illustration from Nigeria,” Journal of African Economies, Vol. 22, No. 4, pp. 570–615.

*Source: wp18273 - REFERENCES (wp18273 - REFERENCES).*

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_Source: https://www.imf.org/-/media/files/publications/wp/2018/wp18273.pdf_