Volume 12, Issue 2 -

The killer argument in the German Policy debate is the fiscal one: we cannot afford a universal basic income (UBI). Fiscal effects are calculated by applying standard microsimulation and general computable equilibrium models. While these empirical models are useful for ex-ante evaluations of marginal reforms, the introduction of a basic income scheme is a fundamental reform associated with behavioural responses that are only partially captured by standard empirical models. Therefore, the proposed randomised controlled trials using nudges will provide more insights into the German institutional setting.

This article shows how the cost of Universal Basic Income (UBI) is often misunderstood and greatly exaggerated. It then presents simple, “back-of-the-envelope” estimates of the net cost of a UBI set at about the official poverty line: $12,000 per adult and $6,000 per child with a 50 % “marginal tax rate.” These back-of-the-envelope calculations present a greatly simplified UBI scheme meant not as a practical proposal but as a method to obtain a ballpark estimate of the cost of UBI in isolation. Even with simplifying assumptions, these figures are several times more accurate than many common but exaggerated estimates. Key findings of this study include the following. The net cost — the real cost — of this UBI scheme is $539 billion per year: about one-sixth its often-mentioned but not-very-meaningful gross cost of about $3.415 trillion. The net cost of this UBI scheme is less than 25 % of the cost of current U.S. entitlement spending, less than 15 % of overall federal spending, and about 2.95 % of Gross Domestic Product (GDP). The average net beneficiary is a family of about two people making about $27,000 per year in market income. The family’s net benefit from the UBI would be nearly $9,000, raising their income to almost $36,000.

Drawing from both theoretical and empirical research, the literature on basic income (BI) is now voluminous, pronouncing both its merits and its limitations. Burgeoning research documents the impacts of un/conditional cash transfers and negative income tax programs, with many studies highlighting the effectiveness of these programs in reducing poverty, and improving a host of social, economic and health outcomes. We consider possible avenues for BI architecture to be adopted within Canada’s existing constellation of income security programs, to the benefit of disadvantaged groups in society. Identifying key federal and provincial (i.e., Ontario) transfer and tax benefit programs, we highlight which programs might best be maintained or converted to a BI. While opponents decry the (alleged) exorbitant costs of BI schemes, we suggest that the existing approach not only produces an ineffective system—which actually engenders poverty and the health and social problems that accompany it—but an excessively costly one.

A unique opportunity for testing whether universal basic income (UBI) on the European level is a realistic option could be provided by its monetary financing as an alternative to “traditional” fiscal financing. Fiscal financing of UBI would namely request a much larger European “federal” budget financed by a specific European tax or by participation of the “federation” on some of the existing tax bases, and by agreed upon allotment of the accumulated “federal” fiscal revenues. Though ensuing redistribution of GDP would be relatively modest, the European UBI without an alternative to the tax revenues requirements remains illusionary. Helicopter money (HM) replacing quantitative easing (QE) might provide such an alternative. Modalities of its implementation differ and the idea raises questions of its compliance with the legal regime of the ECB and opens many other topics such as the effectiveness of “QE for the people” and its long-run consequences.