On the Time Consistency of Universal Basic Income

Jang, Youngsoo (2023): On the Time Consistency of Universal Basic Income.

Abstract

I study how government commitment shapes optimal Universal Basic Income (UBI) by characterizing the equilibria of a dynamic game between heterogeneous individuals and a benevolent government. I find that commitment, throughout the transition, influences how the government balances income redistribution through taxes and UBI with pecuniary externalities from changes in factor income composition. In a calibrated economy, commitment substantially improves welfare by implementing considerable UBI that incurs long-run welfare losses but drives front-loaded welfare gains through income redistribution facilitated by reduced precautionary savings. Without commitment, the government obtains smaller welfare improvements, overlooking the impacts of long-run UBI on the short-run economy.

• Item Type: MPRA Paper
• Language: English
• Keywords: Universal Basic Income, Time Inconsistency, Taxes and Transfers, Heterogeneous Agents, Incomplete Markets
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E61 - Policy Objectives ; Policy Designs and Consistency ; Policy Coordination; H - Public Economics > H1 - Structure and Scope of Government > H11 - Structure, Scope, and Performance of Government

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