The study finds that the economic benefit of UBI would particularly be seen if the government were to finance it by increasing federal debt.
The potential advantages and drawbacks of Universal Basic Income have been debated fiercely in recent months, but a new study suggests that paying everyone an unconditional salary could have a welcomed side effect.
According to US think tank The Roosevelt Institute, a system of universal basic income – or UBI – in the US, under which every citizen is given a basic government salary unconditionally could actually grow the economy on a permanent basis.
But there is a catch.
The research, compiled by the institute’s Marshall Steinbaum, Michalis Nikiforos at Bard College’s Levy Institute, and Gennaro Zezza from the University of Cassino and Southern Lazio in Italy, finds that the economic benefit of UBI would be seen if the government were to finance it by increasing federal debt rather than, for example, by raising taxes.
The research examines three versions of unconditional cash transfers: $1,000 a month to all adults, $500 a month to all adults, and a $250 a month child allowance. When modelled on a plan based on increasing federal debt, all three versions led to economic expansion. The largest cash programme – $1,000 for all adults annually – expands the economy by 12.56 per cent over the baseline after eight years, according to the research.
When modelled on a plan that pays for UBI by simply raising taxes on households, the research found no effect on the economy.
“In effect, it gives to households with one hand what it is takes away with the other,” the academics wrote.
They examined a third model, under which – in the tax-financed scenario – the plan is adapted to include distributional effects: lower income households are taxed less than higher income households. Under that scenario the economy would also grow, the research shows.
“This occurs because the distributional model incorporates the idea that an extra dollar in the hands of lower income households leads to higher spending,” the academics write.
“In other words, the households that pay more in taxes than they receive in cash assistance have a low propensity to consume, and those that receive more in assistance than they pay in taxes have a high propensity to consume. Thus, even when the policy is tax- rather than debtfinanced, there is an increase in output, employment, prices, and wages.”
The study would likely be discredited by some economists who have argued that UBI discourages work and therefore would not contribute to economic expansion. The impact of raising taxes or increasing federal debt to pay for UBI would also likely be a matter of debate.
Earlier this month Richard Branson backed the idea of UBI, joining Facebook FOUNDER Mark Zuckerberg, Slack chief executive Stewart Butterfield, and Tesla boss Elon Musk who have also spoken out in favour of the concept.
A trial is currently taking place in Finland, which rewards 2,000 unemployed people an unconditional monthly sum of €560 (£515). The amount is paid even if recipients find work.
Participants have reported lower levels of stress, greater incentive to find work and freedom to pursue entrepreneurial ideas.
Cities across the Netherlands are launching their first universal basic income trials in October later this year. Other cities in Italy, Canada and Scotland are also at various stages of investigating and launching trials.