The Imperfections of Conditional Programs and the Case for Universal Basic Income

Guimarães, Luis and Lourenço, Diogo (2024): The Imperfections of Conditional Programs and the Case for Universal Basic Income.

Abstract

How costly are the imperfections of conditional welfare programs? Should we replace these programs with a Universal Basic Income (UBI)? We answer these questions using a general equilibrium model with incomplete markets, accounting for three overlooked imperfections of real-life conditional programs: incomplete take-up, illegitimate transfers, and administrative costs. We find that these imperfections, especially incomplete take-up, significantly reduce welfare. Also, diverting almost half of the current welfare expenditure to finance a UBI would maximize welfare by mitigating distortions and reaching those in the dead angle of conditional programs. Conditional programs and UBI are, then, complementary policy instruments, a finding unveiled by accounting for the imperfections of conditional programs.

• Item Type: MPRA Paper
• Language: English
• Keywords: Universal Basic Income; Welfare System; Take-up; Illegitimate Transfers; Administrative Costs; Labor Market Flows.
• Subjects: D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D52 - Incomplete Markets; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H24 - Personal Income and Other Nonbusiness Taxes and Subsidies; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J21 - Labor Force and Employment, Size, and Structure; J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J64 - Unemployment: Models, Duration, Incidence, and Job Search

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