Universal Basic Income in Developing Countries: Issues, Options, and Illustration for India
IMF Working Papers, July 31, 2018
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Bibliographic details
- Authors: David Coady, Delphine Prady
- Published: July 31, 2018
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484370049.001
Overview
- Paper discusses two common arguments for the adoption of a UBI:
- It can be a more effective way of supporting low-income households when existing safety net programs are inefficient.
- It can generate broad support for structural reforms.
- Uses India as an illustration to discuss trade-offs in adopting a UBI in these contexts.
- Emphasizes that careful communication and implementation are required to address political barriers to reform.
Key Findings
- Replacing the 2011 Public Distribution System (PDS) with a UBI:
- Results in losses for many low-income households.
- Much of these losses can be reduced by:
- Recycling the “out-of-system” PDS losses.
- Recycling fiscal savings from excluding the highest-income groups as higher UBI transfers.
- Replacing inefficient energy subsidies with efficient pricing (raising energy prices to internalize negative environmental externalities):
- Could deliver unambiguous distributional gains.
- Could help address fiscal pressures.
- Could improve energy efficiency with associated environmental and health gains.
India Illustration and Trade-offs
- Analysis focuses on substitution of existing programs with a UBI and complementary recycling options:
- Direct replacement of PDS by UBI leads to distributional losses for many low-income households.
- Recycling strategies can mitigate but not necessarily eliminate these losses.
- Energy subsidy reform is presented as an alternative or complementary reform with clearer net benefits:
- Efficient energy pricing internalizes negative environmental externalities.
- Distributional, fiscal, environmental, and health gains are highlighted.
Policy Recommendations and Implementation Considerations
- Recycle fiscal savings and out-of-system program losses to protect vulnerable households when designing a UBI that replaces existing programs.
- Consider excluding highest-income groups to increase transfer amounts available for lower-income households.
- Prioritize reforms that yield unambiguous gains (for example, replacing inefficient energy subsidies) where feasible.
- Implement careful communication and phased implementation strategies to address political barriers to reform.