What Is Universal Basic Income?
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Bibliographic details
- Authors: MAURA FRANCESE, DELPHINE PRADY
- Published: December 1, 2018
Definition and scope
- Universal basic income is an income support mechanism typically intended to reach all (or a very large portion of the population) with no (or minimal) conditions.
- There is no established common understanding; very different income-support programs are often labeled "universal basic income," even when they have little in common or do not aim at the same goal.
- Ongoing and prospective experiments vary widely in design and objectives (examples cited in the source: Finland, Kenya, California).
Key design features and variants
- Programs grouped under the universal basic income umbrella differ along several dimensions:
- Does it replace or complement other social protection programs?
- Is the recipient an individual or a household?
- How is the pool of beneficiaries defined?
- What is the timing of the payment?
- Are there conditions attached?
- Historical and scholarly variants noted in the source:
- Thomas Paine’s (1797) "ground-rent" resembling a categorical capital grant.
- Milton Friedman’s (1968) "negative income tax" intended to replace the welfare state.
- Philippe Van Parijs (1992) advocating a regular, universal, unconditional, and generous cash transfer.
- Anthony Atkinson’s (1996) "participation income" complementing existing programs and conditioned on social participation.
- Two common traits across the spectrum:
- Universality—or very large—coverage of individuals in society.
- Unconditionality—or very broadly conditioned provision.
Arguments in favor
- Better targeting of the poor compared with means-tested programs, which can fail due to administrative capacity, high information and administrative costs, poor targeting mechanisms, and social stigma.
- Potential to save administrative costs and increase transparency, reducing discretion and corruption.
- Useful as a strategic instrument to support structural reforms, including removal of inefficient programs like energy subsidies (Coady and Prady 2018 referenced in the source).
- Can improve efficiency by avoiding sharp withdrawal of benefits as earned income increases, which can discourage labor market participation.
Arguments against
- Sustainability concerns: high fiscal costs because all households—including middle- and high-income households—receive the benefit.
- Efficiency concerns: potential undermining of work incentives and work ethics.
- Opportunity costs: risk of diverting scarce resources from priorities such as health, education, and investment.
Policy trade-offs and implementation considerations
- Policymakers face trade-offs along key dimensions:
- Coverage at the bottom of the income distribution versus leakage to richer households.
- Generosity of transfers versus incentives and economic distortions (for example, the decision to enter the labor market and the number of hours worked).
- Fiscal cost versus alternative use of scarce fiscal resources.
- A fourth consideration: reconciling objectives with implementation challenges, including the government’s capacity to raise resources equitably and sustainably and to roll out a complex transfer program.
- Country-specific circumstances matter:
- Limited administrative capacity in developing economies argues for more universal transfer programs, but displacement of other priorities where revenue mobilization is problematic—particularly in the short term—is a concern.
- In advanced economies, universal basic income is often considered to address inadequate safety nets and challenges from technological and demographic changes.
- Financing must be assessed, including rechanneling resources used elsewhere or raising higher taxes and contributions.
Empirical assessment guidance
- Comparative analysis should evaluate the redistributive performance of existing social safety nets, a universal basic income, and potential alternatives.
- Both the spending and the tax side of the budget shape distributional outcomes; a comprehensive analysis should evaluate both to ensure progressivity (gradually increasing net burden on more affluent households and larger benefits for more vulnerable households).
- Analyses must consider fiscal sustainability and the trade-offs of different design choices.
Source: What Is Universal Basic Income? – IMF Finance & Development Magazine | December 2018
Content in this bundle
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- ¿Qué es el ingreso básico universal? - Revista Finanzas y Desarrollo del FMI | diciembre de 2018
- Что такое универсальный базовый доход? – журнал МВФ «Финансы и развитие» | Декабрь 2018
- Что такое универсальный базовый доход? – журнал МВФ «Финансы и развитие» | Декабрь 2018
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