Money for nothing:  what can basic income achieve?

Ruberl, Heather; Stoian, Anca

Money for nothing: what can basic income achieve?

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Citation

Ruberl, H, Stoian, A. Money for nothing: what can basic income achieve?. 2017. handle: http://hdl.handle.net/10230/33459

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Abstract

Extending an Aiyagari-Huggett style model to include health-related produc-tivity shocks with wealth-dependent probability of occurrence, this paper sets out to assess the implications of introducing a guaranteed minimum income and con-trasts the ensuing general equilibrium outcome with the one obtained by imple-menting a targeted subsidy policy instead (which represents the welfare systems seen in many European countries). The calibration of the model incorporates our empirical finding that individuals in households with debt are more likely to suffer from poor health and have lower productivity than individuals in house-holds without debt. Adding this feature changes the predictions of the standard model by creating an incentive for agents to accumulate just enough assets to secure themselves better health prospects. In this context, the minimum income is welfare improving, but creates more wealth inequality.