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Universal basic income with flat tax reform in France
Journal Pre-proof Universal Basic Income with Flat Tax reform in France Riccardo Magnani, Luca Piccoli
PII:
S0161-8938(19)30094-8
DOI:
https://doi.org/10.1016/j.jpolmod.2019.07.005
Reference:
JPO 6542
To appear in:
Journal
Received Date:
12 January 2019
Revised Date:
22 June 2019
Accepted Date:
15 July 2019
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Policy
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Please cite this article as: Magnani R, Piccoli L, Universal Basic Income with Flat Tax reform in France, Journal of Policy Modeling (2019), doi: https://doi.org/10.1016/j.jpolmod.2019.07.005
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Universal Basic Income with Flat Tax reform in France
Riccardo Magnani1 Luca Piccoli2
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- Université Paris 13 and Sorbonne Paris Cité, France. E-mail: [email protected]. of Sociology and Social Research, University of Trento, Italy. E-mail: [email protected].
2Department
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The authors would like to thank Martine Carré and Amedeo Spadaro for their comments and their contribution to the construction of our Micro-Macro model. Any errors are ours.
Abstract
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This article evaluates the effects of a revenue-neutral tax reform introducing a universal basic income scheme coupled with a flat income tax which replaces the existing minimum income benefit, several other conditional benefits and the existing progressive income taxation. To this aim we use a Micro-Macro simulation model for the French economy. Interestingly, our results show that the reform induces not only a significant reduction in income inequalities and poverty, but also a slightly positive effect at the macroeconomic level, implying that the equity-efficiency trade-off would not be produced.
JEL Classification: D31; C63; C68; H31
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Introduction
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Keywords: Universal Basic Income; Microsimulation models; CGE models
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The introduction of a Universal Basic Income (UBI) has been recently debated in several European countries. For instance, an experiment has been tried in Finland in 2017 on a sample
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of 2,000 unemployed who received 560 euros per month. However, the Finnish government decided to stop the experiment at the end of 2018. In Italy, the government formed in 2018 is trying to introduce a so called “citizen income” which, in reality, is very far from the concept of a “universal income” since only 6.5 million residents who meet some specific conditions will receive 780 euros per month (Colombino and Islam, 2018). In France, the debate on the introduction of a Universal Basic Income (UBI) has been relaunched in 2016 after the proposal 1
of the French presidential candidate Benoît Hamon and recommended by the French economist Thomas Piketty. Given the remarkable changes in the labor market (in particular, the increase in job insecurity and job destruction) observed during the last decades as a consequence of globalization and robotization, the introduction of a Universal Basic Income can be perceived as a powerful tool in order to provide all individuals a minimum grant (Stiglitz, 2017). The UBI, which is provided to all individuals in the same amount and without conditions,1 can be interpreted as a financial
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compensation for the reduction in working time that contributes to a more equitable allocation of the resources in the economy.
However, the introduction of the UBI (or other similar tax systems like the negative income tax
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or the flat tax combined with some income support mechanism) is controversial. The introduction of the UBI has the advantage to be simple and transparent to adopt and
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necessitates low administrative costs. The major drawbacks of this reform, even though it would permit a significant reduction in income inequalities, is that it is very costly and could induce
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people to exit the labor market or to reduce the number of hours worked since the reform induce both a negative income effect, given by the transfer, and a negative substitution effect due
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to the higher taxes that would be needed to finance it (Colombino; 2015a). Consequently, the reform could induce an important equity-efficiency tradeoff as found in the literature (see, for
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instance, using a microsimulation approach, Scutella, 2004, for Australia, Horstschräer et al., 2010, for Germany, Clavet et al., 2013, for Québec, Colombino, 2015b, for Italy, and, using a CGE
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approach, Yunker (2013) for the United States).2 In addition, the cost of the reform, which depends on the chosen amount that will be given to each individual, is in general very high, which would imply higher taxes and the consequent negative effect on labor supply. To avoid excessive labor supply inefficiencies, the UBI could be coupled with a flat income tax, which has For a complete overview about the Universal Basic Income, see Van Parijs (2004). Concerning the evaluation of flat tax reforms, Duncan (2014) for Russia and Paulus and Peichl (2009) for Western Europe find that such reforms can stimulate labor supply and reduce tax evasion. The main problems of these reforms are that they increase income inequalities and that the tax burden is in general shouldered by the middle class. 1 2
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been found to stimulate labor supply and reduce tax evasion in Russia (Duncan, 2014) and Western Europe (Paulus and Peichl, 2009) The main problems of these reforms are that they increase income inequalities and that the tax burden is in general shouldered by the middle class. The aim of this article is to evaluate the effects of a revenue-neutral reform introducing a universal basic income scheme coupled with a flat income tax on the French economy. The proposed reform replaces the existing minimum income benefit, several other conditional
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benefits and the existing progressive income taxation. For a proper evaluation, it is thus extremely important to precisely quantify the cost of the introduction of the UBI, the fiscal reforms necessary to finance its introduction and the economic consequences, both at the individual level and at the macro level, of such shocks. This is why, in our analysis, we use an
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integrated Micro-Macro model3 which consists of a microsimulation model (that includes an
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arithmetical model for the French fiscal system and two behavioral models used to simulate the individual consumption behavior and the labor supply choices) and of a multisectoral and static
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CGE model. Our Micro-Macro model allowed us to evaluate the long-term macroeconomic and distributional effects of this tax reform, including its impact on: (i) macroeconomic indicators
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such as GDP, employment, real wages, the competitiveness of domestic firms, and the purchasing power of households, (ii) sectoral production and the allocation of production factors across sectors, (iii) individual choices concerning labor supply and consumption, and (iv) income
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distribution, poverty and inequality.
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Our simulation results show that the overall effects of this reform would be quite positive. The reform permits not only a significant reduction in income inequality and poverty, but also a
The integration between microsimulation models and general equilibrium models appears very appealing since it allows to avoid the shortcomings of both types of models, i.e. that in microsimulation models the analysis is carried out in a partial equilibrium framework (in the sense that the effects on the individual behavior are computed without taking into account the general equilibrium effects that the change in individual behavior determines at the macro level) and that macro general equilibrium models are mainly based on the representative agent paradigm. In fact, in integrated Micro-Macro models, the individual effects are computed by taking into account the general equilibrium effects and the macro effects are computed by taking into account individual heterogeneity at a very detailed level. 3
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moderately positive effect at the macroeconomic level. This is explained by the fact that the elasticity of the labor supply with respect to the net real wage and with respect to other nonlabor incomes are both very low in France. In other words, the tax reform induces a limited effect on labor supply which, coupled with the positive effect on the labor demand, significantly reduces unemployment. Considering that the reform produces a redistribution of income from rich people (characterized by high propensity to save) to poor people (characterized by low propensity to save), another important implication of the reform is that consumption increases at the national level, stimulating the aggregate demand. Our CGE model takes into account a non-
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standard macro closure which is between the standard neoclassical closure (where investments are savings-driven) and the Keynesian closure (where investments are fixed at an exogenous level). Thus, in our CGE model, the increase in aggregate demand has a positive effect on real
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GDP and on employment. In addition, the reduction in the unemployment rate permits an additional positive effect by reducing inequalities and poverty. Our main result is thus that the
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equity-efficiency tradeoff would not be produced for the proposed reform of UBI combined with a flat tax in France. This result can be achieved thanks to the relatively small amount of the
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benefit, which does not require an excessive increase in income tax rates, and the removal of efficiency losses implied by the progressive income taxation schedule and other non-linear
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conditional benefits.
This article is organized as follows. Section 2 presents the main features of our Micro-Macro
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model. Section 3 presents the simulation results of the introduction of the UBI combined with a
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flat tax. Section 4 concludes.
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The Micro-Macro model
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In this section, we briefly present our Micro-Macro model for the French economy which is composed by a micro component, the SYSIFF 2006 (Système d’Imposition Fiscale Français de 2006), and a macro component, a multisectoral CGE model.4
2.1 The Macro component The macro component of our Micro-Macro model is a multisectoral and static CGE model with two foreign zones: the Eurozone and the rest of the world. The model, calibrated using the 2006
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French input-output dataset provided by French National Statistical Office (Insee), is characterized by an innovative closure rule which will be described later on.
As shown in Table 1, the CGE model includes 19 sectors, 11 of which correspond to the sectors
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used in the microsimulation model concerning the consumption decisions. For each sector, we use a multi-stage CES production function. In the first stage, output depends on the demand of
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total intermediate good, labor and capital. In the second stage, the total intermediate good depends on the intermediate goods sold by each sector. In the third and the fourth stages,
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quantities coming from the domestic market, from the Eurozone and from the rest of the world are accounted for.
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Concerning households, we consider one representative agent who earns (net of taxes) labor and capital incomes perceived in France and abroad, and transfers from the government. An
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endogenous fraction of the disposable income is saved and the complementary fraction is used to buy goods and services. The consumption level of each good is exogenous and fixed at the
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level determined by the micro component model. Then, the representative agent chooses the optimal repartition of the consumption demand of each good between domestic goods and foreign goods coming from the Eurozone and from the rest of the world. Concerning the government, public revenues come from direct taxes on labor and capital incomes, indirect taxes on production and on the value added, and employees’ and employers’ 4
For a full description of the model, see Magnani et al. (2017).
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social contributions. Government expenditures are given by the total public expenditure (supposed to be equal to a constant fraction of GDP), interests on the public debt and transfers to households. The difference between public revenues and expenditures determines public savings. The proposed CGE model differs from standard specifications in two aspects. First, the model is solved by considering several variables as exogenous: the total quantity of labor supplied; the consumption demand of goods and services; the total amount of employees’ and employers’
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social contributions; the total amount of income taxes; the total amount of transfers from the government. However, it is important to note that these variables are not exogenous in our Micro-Macro model, but determined by the micro component, which takes into account full individual heterogeneity.
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The second non-standard element, which in our opinion is a relevant innovation with respect to
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the existing literature is the macro closure rule. The neoclassical closure, that is the most frequently used in general equilibrium models, implies that investments are determined by
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aggregate savings (in other words, investments are savings-driven). The neoclassical closure implies that a shock or a policy reform that increases one component of the aggregate demand
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induces an implausible negative effect on investments, while the effect on the GDP is quite negligible since GDP depends on the supply of the production factors that are assumed to be fully employed in the economy. The only effect on GDP would come from a reallocation of
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production factors across sectors. Thus, a shock or a policy reform that increases one component
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of the aggregate demand can stimulate real GDP only by removing the hypothesis of fullemployment of production factors and by assuming that involuntary unemployment is produced, according to the Keynesian view, by the weakness in aggregate demand. In contrast, the Keynesian closure implies that investments are fixed at a predetermined level (see, for instance, Alvaro and Polo 2012) while the unemployment rate is endogenously determined in order to satisfy the macroeconomic equilibrium condition between investments and aggregate savings. This implies that the equilibrium determined at the macro level may be an under6
unemployment equilibrium, if the aggregate demand is insufficient. However, also the Keynesian closure presents a major shortcoming since the fall in the unemployment rate induced by an expansionary reform would be excessively large. This is why we propose to use a closure rule which is between the neoclassical and the Keynesian ones (Magnani, 2015), introducing an investment function, estimated using yearly French data from 1946 to 2012 provided by Insee (Magnani et al., 2018), which takes into account the (partial) crowding-out effect on investments produced by a change in the components of the aggregate demand.
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Finally, the exchange rate is assumed to be exogenous, implying that the balance of payments determines the flow of foreign assets to France. The numéraire is the domestic price index.
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2.2 The Micro component
The micro component of the proposed Micro-Macro model is an arithmetical microsimulation
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model for the French fiscal system integrated with two behavioral models concerning consumption and labor supply decisions, the SYSIFF 2006 (Système d’Imposition Fiscale Français,
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fully described in Magnani et al., 2018). It is based on the 2006 French Household Budget Survey (BDF 2006), a sample of families that are representative of the French population. The
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arithmetical part of the model simulates, for each of these families, social contributions, income taxes, VAT, local taxes and social benefits due or to be received by the state. The behavioral part
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includes two different microsimulation models concerning the individuals’ consumption and labor supply decisions.
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Individuals’ consumption decisions are simulated starting from the estimation of a consumption demand system based on the Almost Ideal Demand System proposed by Deaton and Muellbauer (1980) and extended (as in Banks et al., 1997) introducing a quadratic income term. Observed heterogeneity is accounted for through an income translating function (Gorman, 1976). The system of demand equations is estimated simultaneously by Full Information Maximum Likelihood, and a generalized Heckman correction for zero expenditures (Shonkwiler and Yen, 7
1999) is applied. To be consistent with the CGE model, consumption goods are aggregated into 11 categories: food, drinks, tobacco, clothing, housing, health care, transport/energy, communication, leisure, food out of home, and other goods. The estimation results are presented in Magnani et al. (2018). This econometric model permits to quantify the consumers reactions to a shock or a policy, depending on the effect on the equilibrium prices (determined by the macro component) and on the individual’s disposable income (determined by the fiscal rules embedded in the arithmetical model and the labor supply decisions). Consumption decisions are
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determined using family-specific rather than average price and income elasticities. The microsimulation model for individuals’ labor supply decisions is based on the estimation of a discrete choice labor supply model à la Van Soest (1995) extended with involuntary unemployment (Magnac, 1991). The estimation of a discrete choice model allows to directly
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estimate the utility function parameters without the need of a Marshallian labor supply function, which would be impossible to obtain because of the non-linearities of the French fiscal system,
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and thus of the budget set. Discrete choice models have the advance of capturing behavioral
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change in corner solution, accounting for market rigidities and avoiding the computational and analytical difficulties arising from non-linear and non-convex budget constraints, since the budget constraint is computed by the arithmetical model and introduced directly into the utility
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function.
In our model, individuals can choose among four work alternatives: not to work (0 hours), 50%
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part-time (18 hours), 80% part-time (28 hours), and full time (36 hours). Because not
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everybody chose exactly one of these options, we set-up intervals within which the assigned choice is one of the four and, to avoid inconsistencies, hourly wages are computed on the hours of work corresponding to the assigned choice. The estimates of labor supply are performed on a sub-sample of potential wage earners (retired people, self-employed and individuals younger than 20 or older than 60 years are excluded)
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separately for single men, single women and couples.5 Of course, in order to compute the disposable income for the non-observed alternatives, it is necessary to generate a potential salary for the unemployed, estimated using a Heckman correction model (Heckman, 1979). With respect to the standard model proposed by Van Soest (1995), which implicitly assumes that non-working people choose not to work, in our setting unemployment may be involuntary, as in Magnac (1991), Bingley and Walker (1997), and Haan and Uhlendorff (2007). In our sample, 19.7% of individuals do not work and 6.3% of the sample is involuntarily unemployed,
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implying that the unemployment rate is 7.3%. Thanks to this feature, if a shock or reform modifies the unemployment rate at the macro level, some individuals may find a job if the unemployment rate decreases, or lose their job if the unemployment rate increases, depending on their estimated probability of being involuntary unemployed.
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As detailed in Magnani et al. (2018), the discrete choice model is estimated using a Multinomial
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Logit regression, such that each individual chooses the alternative that maximizes his utility. Once the model is estimated the correct prediction is quite large, 88% for single men, 72% for
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single women and 53% for couples. To ensure that 100% of correct prediction is achieved, 300 extreme-value distributed stochastic terms are extracted for each choice, conditioned on the fact
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that the prediction corresponds to the observed choice. This error term captures the unobservable heterogeneity remaining after estimating the model. The 300 extractions ensure the statistical properties of labor supply predictions once an exogenous shock or a fiscal reform
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modifies the available income of the individuals.
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Overall, the micro component permits to quantify the individual’s reaction to a shock or a policy in terms of consumption, labor supply and work status and, consequently, in individuals’ disposable income and consumption choices. These effects depend on the change in the equilibrium prices and real wage (determined in the macro component), on the individual’s
The work decision for couples is conducted jointly by considering the four alternatives described above for the woman and two alternatives (full time work or not to work) for the man, for a total of 8 combinations. 5
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disposable income for each labor supply alternative (determined in the arithmetical microsimulation model), and on the unemployment rate (determined in the macro component).
2.3 Integration of the Macro and Micro components The integration of the Macro and Micro components is performed using an iterative approach. The model is composed by the SYSIFF 2006 microsimulation model for the micro component and a static multisectoral CGE model for the macro component. An Excel VBA macro is the heart
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of the whole Micro-Macro model and links all the models together allowing for a complete micro-macro integration. It is responsible (i) to run the simulation in the CGE model, to read the macro results and pass them to SYSIFF 2006; (ii) to load the micro dataset into SYSIFF 2006, to
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read the results of the arithmetical model and pass them to the labor supply behavioral model; (iii) to read the results concerning labor supply and pass them to the consumption behavioral
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model; (iv) to aggregate the micro effects on disposable income, consumption, labor supply, public transfers and taxes collection, and to pass them to the CGE model which computes again
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the macro effects; (v) to iterate between the CGE model and SYSIFF 2006 until the variations of all relevant variables are sufficiently stable. When the fixed point is reached, the VBA macro
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stores the final results that are further used to analyze the effects on income distribution,
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inequality and poverty.
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Simulation analysis
The objective of our article is to evaluate the effects of a revenue-neutral reform of the French 2006 welfare state introducing a universal basic income scheme combined with a flat income tax. This reform is financed by the elimination of the existing minimum income benefit, several other conditional benefits and the existing progressive income taxation.
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The baseline is the 2006 French welfare state, a highly complex set of conditional benefits that besides the minimum income benefit (RMI),6 characterized by a baseline benefit of about 5,196 euros per year and 0%, 50% or 100% withdrawal rate (depending on how long one has been receiving the benefit), includes several other conditional benefits, such as family benefits, a housing benefit, schooling benefits, minimum pensions, an in-work tax credit, several tax reductions, and a progressive income tax scheme based on an equivalent income (the equivalence scale applied is called quotient familial) and 7 income tax brackets, ranging from 0% to 48.09% of the equivalent taxable income.7 The proposed reform greatly simplifies the
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existing system by replacing all existing benefits, tax reductions and tax credits with an unconditional basic income designed to be revenue neutral, that is no further deficit is generated on the day of effectiveness of the reform.8 To permit the highest level of income redistribution,
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we consider a flat tax rate corresponding to the maximum of the existing system, i.e. 48.09% of the equivalent taxable income. Note, however, that after taking into account the system of tax
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abatements and other fiscal mechanisms for the calculation of the taxable income, the tax rate is, on average, about 15% of the gross income. Under these conditions, the unconditional basic
3.1 Macro results
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income that can be distributed to each French citizen amounts to 2,038 euros per year.
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The macro results are mostly driven by the effects on the individual behavior concerning labor supply and consumption, which will be detailed below. Given that the estimated labor supply
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elasticities are relatively small, and combined with the efficiency gains produced by the substitution of a progressive taxation with a flat tax, a change in net wages and non-labor incomes induces a relatively small effect on the quantity of labor supplied by French families. This implies that the equity-efficiency trade-off typically produced by redistributive reforms Canova et al. (2015) used the same Micro-Macro simulation model to evaluate the effects of the 2008 reform which removed the RMI and introduced a less distortive benefit, the RSA. 7 For more details on the French 2006 fiscal system, see Canova et al. (2009). 8 The public deficit can be increased or reduced, though, as a consequence of behavioral changes (in labor supply or consumption) and/or market adjustments (in wages, prices, unemployment, etc.). 6
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does not emerge for the proposed reform of the French fiscal system. In addition, the policy reform proposed in our article implies a redistribution of incomes from rich individuals with low propensity to consume to poor individuals with high propensity to consume. Thus, at the national level, the reform produces an increase in aggregate consumption. In the case of a neoclassical closure rule, the increase in consumption would produce a strong crowding-out effect on investments and a negligible effect on GDP. In contrast, the closure rule used in our CGE model implies that the increase in aggregate consumption produces only a partial crowding-out effect on investments. Thus, aggregate demand increases, which stimulates real GDP. Given that
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the capital stock is exogenous, the increase in real GDP is made it possible thanks to the reduction in unemployment.
More precisely, as shown in Table 2, the reform would increase aggregate consumption by 0.7%
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(determined in the microsimulation model), reduce investments by 1%, increase real GDP by 0.2% and reduce the unemployment rate by 1 percentage point. The increase in labor supply,
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which implies a reduction in the capital/labor ratio and, thus, in labor productivity, produces a
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reduction in the real wage (-0.2%) while the real interest rate remains essentially unchanged. In addition, given that consumption increases more than incomes, the private saving rate decreases
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by 0.5 p.p.
Concerning the effects at the sectoral level, presented in Table 3, the effect on output and the demand for labor and capital clearly depends on the effect, determined in the microsimulation
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model, on consumption. Thus, output increases in those sectors (Tobacco and Leisure) where
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consumption increases the most. In contrast, the reduction in the output level in the Construction sector and the Mechanic sector (-0.8% and -0.3%, respectively) is explained by the fall in investments (-1%).
3.2 Microeconomic results
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The tax reform proposed in our article produces important effects on individual choices and on the income distribution, inequality and poverty. A particularly relevant aspect of the universal basic income reform is its impact on the labor supply. It is well known that minimum income schemes may be largely inefficient in this respect, especially when the withdrawal rate is large. Imagine that an unemployed receive the minimum income (about 5,000 euros) and finds a job. With the RMI, after 12 months each euro gained working is withdrawn from the benefit, rendering the possibility of working for small salaries
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less attractive respect to not working and receiving the minimum income. With the unconditional basic income, on the other hand, these kind of incentives are not at work, and all money gained from work add to the benefit, rendering part-time and low pay jobs more attractive. The cost of a universal benefit, however, is very large, and the removal of all other
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kind of benefits is not sufficient to finance a decent amount of benefit. In our simulations, in order to be able to pay for the costs of a basic income of about 2,000 euros per year, we had to
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impose a flat income tax corresponding to the highest marginal rate of the existing system,
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48.09%. As previously said, it is important to note that after taking into account the system of tax abatements and other fiscal mechanisms for the calculation of the taxable income, the average tax rate is about 15% of the gross income. Such a large income tax rate could reduce the
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incentives to work, in particular for qualified and full-time workers. However, we find that the negative effect on the quantity of labor that is voluntarily supplied by French people is quite
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modest. This is explained by the fact that the estimated labor supply elasticities (with respect to
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the net wage and to the non-labor incomes) are very low. In addition, it is important to note that in our Micro-Macro simulation model the effect on labor supply depends not only on individual choices, but also on the effect determined at the macro level concerning the demand side. As shown in the previous section, unemployment decreases thanks the fact that the fiscal shock stimulates aggregate demand and real GDP. In this case, even if some people decide to work less given that the reform reduces the incentives to work for full-
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time workers, the reduction in unemployment over-compensates the negative effect and, at the end, the total labor supply increases. The mechanisms described above is at work in our sample, as shown in Table 4 which reports the work status transition matrices for singles and couples.9 Looking at singles, a relevant proportion of non-workers do work after the reform (about 1.1% of singles), but at the same time some full-time workers either reduce or stop working (about 0.4% of singles). The net effect is positive, with the proportion of individuals that do not work reducing from 15.7% to
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14.9%. There is a slight increase in 80% part-time workers (from 8.2% to 8.4%) and an increase in full-time workers (from 69.4% to 70.1%). A similar pattern is followed by couples. The number of couples in which both members don’t work reduces to 2.7% (from 3.1%), and those in which one member does not work (either the husband or the wife) reduces to 20.6% from
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21.6%. At the same time, the number of couples in which both work full time increases only by 0.1 percentage point, because several bi-active couples decide to reduce their labor supply: in
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part-time solution after the reform.
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about 1% of couples one member stops working, and in about 0.6% of couples the wife opts for a
The effect on consumption choices depends on the change in the disposable income induced by
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the reform and the consequent labor supply variation (determined using the microsimulation model) and on the change in equilibrium prices (determined in the CGE model). As shown in Table 5, the reform brings to a moderate increase in consumption, especially of Tobacco and
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Communications, clearly driven by the increase in consumption of poor families and single
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males who present high propensity to consume. The analysis of the effects of the tax reform on income inequality and poverty is based on the computation of the equivalent disposable income at the individual level. The effect on the equivalent disposable income clearly depends on the elements of the tax reform (introduction of the UBI, elimination of the previous benefits and switch from the previous progressive tax In this table, each cell shows the percentage of individuals that work the amount of hours before the reform (on the left) and those after the reform (on the top). The cells on the diagonal (highlighted in grey) indicate the percentage of individuals who did not change their labour supply with the reform. 9
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system to a flat tax system), but also on the change in the real wage (determined at the macro level) and the change in the work status (determined at the individual level). Overall, as shown in Table 6, it is possible to note that the reform allows a general improvement in poverty and inequality. The number of poor families reduces by more than 17%, and the intensity of poverty is also reduced, although to a smaller extent, about 10%. This is quite substantial, considering that the reform proposes a universal basic income which is substantially smaller than the minimum income guaranteed by the 2006 fiscal system. Both of them, however,
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lie below the poverty line (set at about 6,700 euros) and the substantial poverty reduction is mostly driven by the increased income of the working poor, who receive a substantial income boost with the reform, and by the reduction in unemployment. Indeed, looking at Figure 1, there is a clear shift of equivalent disposable incomes up to 10,000 euros toward larger values. This
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brings a noticeable reduction in inequality as well, with the Gini coefficient reducing by 12%, down from 0.29 to 0.257, as well as the interdecile ratio (the ratio between the average income
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of the last decile and that of the first decile of the income distribution) that reduces by almost
the last decile by 7%.
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17% thanks to an increase of incomes of the first decile by 12% and a reduction of incomes of
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Figure 2 highlights even more the strong redistributive power of the reform. It plots the average gain for each level of baseline equivalent income. The line shows substantial positive gains for equivalent disposable incomes below 15,000 euros and substantial and increasing losses for
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higher incomes, stabilizing at about 35,000 euros. This implies a large loss, in relative terms, for
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the middle class, which loses about 10% of disposable income, while richer families, having similar absolute losses, lose a smaller share of their disposable income, about 5% for families with a 60,000€ equivalent income. A more disaggregated analysis of winners and losers, presented in Table 7, reveals that overall winners and losers are almost evenly distributed, but the average gain for the winners represents a larger proportion of their income than the average loss for the losers. This brings to
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a net gain of about 4.4% of disposable income. As highlighted in the previous paragraph, those who benefit more from the reform are the poor, 76.5% of whom have an income that is 56.3% larger after the reform. There are still losers among the poor (about 24.6%), which are mostly made of non-working families that were getting the full amount of the minimum income (more than 5,000 euros) and now receive only the basic income (about 2,000 euros per year), and cannot start working. Those who gain less from the reform are singles (even with children), while couples and the
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elderly have slightly better results. It is worth noting that the proposed reform substitutes the generous system of family benefits with the basic income, which is given also to children. Thus, on one hand large families have a substantial boost in income because each member receives the basic income. On the other hand, families with young children may end up losing from the
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reform because losing the more generous child benefits.
Conclusions
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In this article we present a Micro-Macro simulation model applied to the French economy to evaluate the effects a revenue-neutral reform of the French 2006 welfare state. The reform
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analyzed in this article consists in replacing the existing benefits and progressive income taxation with a universal basic income scheme and a flat income tax. We show that overall the
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effects are quite positive. In fact, the reform induces an increase in the disposable income of poor individuals who present a high marginal propensity to consume, while richer individuals
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(who present low marginal propensity to consume) are penalized by the reform. At the aggregate level, the reform induces an increase in aggregate consumption which stimulates real GDP and reduces unemployment. At the individual level, the redistribution of incomes from rich individuals to poor individuals clearly reduces inequalities and poverty. In terms of labor supply, the introduction of a universal income coupled with a flat tax induces some people to reduce the number of hours worked. However, the negative effect is overcompensated by the reduction in 16
unemployment since the proposed reform stimulates aggregate demand and GDP. At the end, the proposed reform induces an overall increase in labor supply which substantially contributes
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to the reduction of inequality and poverty.
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References Banks, James, Blundell, Richard and Lewbel, Arthur, (1997), Quadratic Engel Curves And Consumer Demand, The Review of Economics and Statistics, 79, issue 4, p. 527-539. Bingley, Paul and Walker, Ian, (1997), The Labour Supply, Unemployment and Participation of Lone Mothers in In-Work Transfer Programmes, Economic Journal, 107, issue 444, p. 13751390. Canova, Luciano, Piccoli Luca, and Spadaro, Amedeo, (2009), SYSIFF 2006: a microsimulation model for French tax system. MicroSimula - Paris School of Economics. Canova, Luciano, Piccoli Luca and Spadaro, Amedeo, (2015) An ex ante evaluation of the Revenu de Solidarité Active by micro-macro simulation techniques, IZA Journal of European Labor Studies, Springer, vol. 4(1), p. 1-20.
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Clavet, Nicholas-James, Duclos, Jean-Yves and Lacroix, Guy, (2013), Fighting Poverty: Assessing the Effect of Guaranteed Minimum Income Proposals in Québec, Canadian Public Policy, 39, issue 4, p. 491-516 . Colombino, Ugo, (2015a) Is unconditional basic income a viable alternative to other social welfare measures? IZA World of Labor, 128.
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Colombino, Ugo, (2015b), Five Crossroads on the Way to Basic Income: An Italian Tour, Italian Economic Journal, 1, Issue 3, p. 353-389.
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Colombino, Ugo and Islam, Nizamul, (2018), Basic Income and Flat Tax: The Italian Scenario", CESifo Forum, 19, issue 3, p. 20–29.
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Duncan, Denvil, (2014), Behavioral responses and the distributional effects of the Russian ‘flat’ tax, Journal of Policy Modeling, 36, issue 2, p. 226-240. Deaton, Angus S. and Muellbauer, John, (1980), An Almost Ideal Demand System, American Economic Review, 70, issue 3, p. 312-326.
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Haan, Peter and Uhlendorff, Arne, (2013), Intertemporal Labor Supply and Involuntary Unemployment, Empirical Economics, 44, issue 2, p. 661-683.
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Horstschräer, Julia, Clauss, Markus and Schnabel, Reinhold, (2010), An unconditional basic income in the family context: Labor supply and distributional effects, No 10-091, ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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Gorman, William Moore, (1976). Tricks with utility functions. In M. J. Artis and A. R. Nobay (Eds.), Proceedings of the 1975 AUTE Conference, Essays in Economic Analysis. Cambridge: Cambridge University Press. Heckman, James, (1979), Sample Selection Bias as a Specification Error, Econometrica, 47, 153161. Magnac, Thierry, (1991), Segmented or Competitive Labor Markets, Econometrica, 59, issue 1, p. 165-187. Magnani, Riccardo, (2015), The Solow Growth Model Revisited. Introducing Keynesian Involuntary Unemployment, CEPN Working Papers, HAL.
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Magnani, Riccardo, Piccoli, Luca, Carré, Martine and Spadaro, Amedeo, (2018), A Micro-Macro simulation model applied to the French economy. The case of a euro’s real depreciation", in Perali Federico and Scandizzo Pasquale Lucio, The New Generation of Computable General Equilibrium Models, Springer International Publishing. Paulus, Alari and Peichl, Andreas, (2009), Effects of flat tax reforms in Western Europe, Journal of Policy Modeling, 31, issue 5, p. 620-636. Scutella, Rosanna, (2004), Moves to a Basic Income-Flat Tax System in Australia: Implications for the Distribution of Income and Supply of Labour, Melbourne Institute Working Paper Series, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne. Shonkwiler, J. Scott and Yen, Steven T., (1999), Two-Step Estimation of a Censored System of Equations, American Journal of Agricultural Economics, 81, issue 4, p. 972-982.
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Stiglitz, Joseph, (2017), The coming great transformation, Journal of Policy Modeling, 39, issue 4, p. 625-638. Van Parijs, Philippe , (2004), Basic Income: A Simple and Powerful Idea for the Twenty-First Century, Politics & Society, 32, issue 1, p. 7-39. Van Soest, Arthur, (1995), Structural Models of Family Labor Supply: A Discrete Choice Approach, Journal of Human Resources, 30, issue 1, p. 63-88.
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Yunker James A., (2013), The Basic Income Guarantee: A General Equilibrium Evaluation, Basic Income Studies, 8, issue 2.
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Figure 1: Effect on the distribution of the equivalent disposable income
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Figure 2: Distribution of gain by equivalent income
21
Table 1: List of the sectors in the CGE model
Food
Agriculture, hunting, forestry, fishing. Food
2
Beverage
Beverages
3
Tobacco
4
Energy
5
Mineral products
6
Textile
Tobacco Mining and quarrying. Coke, refined petroleum products and nuclear fuel. Production, collection and distribution of electricity. Manufacture of gas; distribution of gaseous fuels through mains. Steam and hot water supply. Collection, purification and distribution of water Chemicals excluding pharmaceuticals. Rubber and plastics products. Other non-metallic mineral products Textiles, textile products, leather and footwear
7
Housing
Wood and products of wood and cork
8
Mechanic industry
9
Electric industry
10
Metallurgy
11
Health
Machinery and equipment, nec Office, accounting and computing machinery. Electrical machinery and apparatus. Medical, precision and optical instruments Iron and steel. Non-ferrous metals. Fabricated metal products, except machinery and equipment Health and social work. Pharmaceuticals. Education
12
Construction
13
Transports
14
Hotels and restaurants
15
Leisure
16
Communications
17
Public administration
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Public admin. and defense; compulsory social security Real estate activities. Renting of machinery and Non-financial services equipment. Computer and related activities, Research and R&D and development. Other business activities Financial services Finance and insurance
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Construction Motor vehicles, trailers and semi-trailers. Building and repairing of ships and boats. Aircraft and spacecraft. Railroad equipment and transport equip nec. Manufacturing nec; recycling. Land transport; transport via pipelines. Water transport. Air transport. Supporting and auxiliary transport activities. Activities of travel agencies Hotels and restaurants Pulp, paper, paper products, printing and publishing. Radio, television and communication equipment. Other community, social and personal services. Private households with employed persons and extra-territorial organizations and bodies Post and telecommunications
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1
22
Table 2: Aggregate effects on the main macroeconomic variables (Variation in %)
0.2
Unemployment rate
(Variation in p.p.)
-1.0
Labor
(Variation in %)
0.3
Capital
(Variation in %)
0.0
Real wage
Variation in %)
-0.2
Real rate of remuneration of capital
(Variation in p.p.)
0.0
Private consumption
(Variation in %)
0.7
Investments
(Variation in %)
-1.0
Government expenditure
(Variation in %)
0.2
Private saving rate
(Variation in p.p.)
-0.5
(Variation in p.p.)
-0.1
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Real GDP
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Public deficit / GDP
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Table 3: Sectoral effects on some macro variables (in %)
Beverage
3
Tobacco
4
Energy
5
Mineral products
6
Textile
7
Housing
8
Mechanic industry
9
Electric industry
10
Metallurgy
11
Health
12
Construction
13
Transports
14
Hotels and restaurants
15
Leisure
16
Communications
17
Public administration
0.1
0.2
0.1
0.2
-1.0
0.1
0.1
0.0
0.1
3.8
3.9
3.7
4.0
0.0
0.1
0.0
-1.0
0.1
0.1
0.0
-1.0
0.1
0.2
0.0
0.1
0.1
-0.1
-0.3
-0.2
-0.4
0.0
0.0
-0.2
0.0
0.0
0.5
0.6
0.6
-1.0
1.6
-1.0
0.4
0.2
1.4
-1.0 -1.0 -1.0
0.1
0.2
0.0
0.1
0.6
0.7
0.4
1.1
2.5
2.6
2.4
5.7
0.2
0.3
0.0
Non-financial services and 0.0 R&D 0.4 Financial services
0.1
-0.1
0.5
0.3
na
-1.0 -1.0
-0.7
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0.3
0.1
-0.2 0.4
-1.0
-1.0
-1.0
-1.1 0.8
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Investments
-0.8
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18
Consumption
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2
Capital
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Food
Labor
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1
Output
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Table 4: Work status transition matrices for singles and couples Singles
Before reform
the
After the reform 0
18
24
36
Total
0
14.6
0.0
0.2
0.9
15.7
18
0.0
6.6
0.0
0.1
6.7
24
0.1
0.0
8.2
0.0
8.2
36
0.2
0.1
0.0
69.1
69.4
Total
14.9
6.7
8.4
70.1
100
0-18
0-24
0-36
36-0
36-18
0-0
2.8
0.0
0.0
0.1
0.2
0.0
0-18
0.0
0.8
0.0
0.0
0.0
0-24
0.0
0.0
0.7
0.0
0.0
0-36
0.0
0.0
0.0
2.6
36-0
0.1
0.0
0.0
0.0
36-18
0.0
0.0
0.0
0.0
36-24
0.0
0.0
0.0
36-36
0.1
0.0
0.0
Total
2.7
36-36
Total
0.0
0.0
3.1
0.1
0.0
0.0
0.9
0.0
0.0
0.0
0.7
0.0
0.0
0.2
2.9
17.7
0.2
0.2
0.5
18.7
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re 0.0
0.1
9.7
0.0
0.0
9.9
0.0
0.3
0.1
14.0
0.1
14.5
0.1
0.9
0.4
0.2
47.6
49.4
0.7
2.4
18.2
10.9
14.8
49.5
100
na 0.7
36-24
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0-0
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Before the reform
After the reform
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Couples
25
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f
Table 5: Effect on income, consumption and prices Family type
Income
Food
Beverages
Tobacc o
Clothing Housing
Health
Transport Comm. s
Recreatio n
Hotels
Fin. serv.
All families
4.4%
0.2%
0.1%
5.6%
-0.7%
3.2%
2.0%
9.3%
1.7%
0.3%
1.8%
Poor
36.3%
3.8%
2.9%
44.9%
31.4%
28.8%
95.0%
18.9%
10.9%
16.1%
Couples with 1 child
4.4%
0.5%
1.0%
Couples with 2 children
5.6%
1.9%
2.4%
Couples with 3 children or 3.0% more
0.8%
Elderly (aged more than 60)
pr 11.4%
e-
1.6% 1.0%
1.4%
0.9%
1.6%
0.4%
1.0%
0.7%
0.5%
2.4%
2.6%
3.1%
2.9%
1.9%
4.0%
2.3%
1.4%
1.5%
1.2%
0.9%
2.2%
1.8%
1.5%
1.4%
1.4%
1.5%
1.3%
0.9%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.00%
0.01%
-0.01%
0.02%
-0.01%
-0.02% -0.02%
-0.01%
-0.01%
-0.02% 0.00%
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Pr
1.0%
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Price variations
7.3%
0.8%
26
Table 6: Main microeconomic effects on poverty and income distribution Reform
Variation
Headcount ratio
9.05%
7.49%
-17.2%
Poverty gap ratio
2.53%
2.28%
-9.8%
Gini index
0.2909
0.2567
-11.8%
10th percentile
6867
7682
11.9%
50th percentile
13363
13753
2.9%
90th percentile
24750
23029
-7.0%
90th / 10th perc.
3.60
3.00
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Baseline
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-16.8%
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Table 7: Winners and losers from the reform Winners
Losers
Gain
Loss
Net gain
All families
51.7%
48.6%
17.2%
-9.1%
4.4%
Poor
75.4%
24.6%
56.3%
-23.0%
36.3%
Single males
26.6%
73.4%
36.9%
-9.5%
2.5%
Single females
39.9%
60.1%
19.7%
-9.4%
2.1%
Singles without children
53.3%
46.7%
12.7%
-22.9%
-4.0%
Couples without children
59.2%
40.8%
15.3%
-7.5%
6.0%
Couples with 1 child
57.2%
42.8%
13.5%
-7.8%
4.4%
Couples with 2 children
63.3%
36.7%
13.2%
-7.5%
5.6%
60.7%
39.3%
10.8%
60.3%
39.7%
17.9%
Couples with children
3
or
more
-9.1%
3.0%
-8.7%
7.3%
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Elderly (aged more than 60)
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Family type
28
PII:
S0161-8938(19)30094-8
DOI:
https://doi.org/10.1016/j.jpolmod.2019.07.005
Reference:
JPO 6542
To appear in:
Journal
Received Date:
12 January 2019
Revised Date:
22 June 2019
Accepted Date:
15 July 2019
of
Policy
Modeling
Please cite this article as: Magnani R, Piccoli L, Universal Basic Income with Flat Tax reform in France, Journal of Policy Modeling (2019), doi: https://doi.org/10.1016/j.jpolmod.2019.07.005
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Universal Basic Income with Flat Tax reform in France
Riccardo Magnani1 Luca Piccoli2
1CEPN
- Université Paris 13 and Sorbonne Paris Cité, France. E-mail: [email protected]. of Sociology and Social Research, University of Trento, Italy. E-mail: [email protected].
2Department
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The authors would like to thank Martine Carré and Amedeo Spadaro for their comments and their contribution to the construction of our Micro-Macro model. Any errors are ours.
Abstract
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This article evaluates the effects of a revenue-neutral tax reform introducing a universal basic income scheme coupled with a flat income tax which replaces the existing minimum income benefit, several other conditional benefits and the existing progressive income taxation. To this aim we use a Micro-Macro simulation model for the French economy. Interestingly, our results show that the reform induces not only a significant reduction in income inequalities and poverty, but also a slightly positive effect at the macroeconomic level, implying that the equity-efficiency trade-off would not be produced.
JEL Classification: D31; C63; C68; H31
1
Introduction
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Keywords: Universal Basic Income; Microsimulation models; CGE models
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The introduction of a Universal Basic Income (UBI) has been recently debated in several European countries. For instance, an experiment has been tried in Finland in 2017 on a sample
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of 2,000 unemployed who received 560 euros per month. However, the Finnish government decided to stop the experiment at the end of 2018. In Italy, the government formed in 2018 is trying to introduce a so called “citizen income” which, in reality, is very far from the concept of a “universal income” since only 6.5 million residents who meet some specific conditions will receive 780 euros per month (Colombino and Islam, 2018). In France, the debate on the introduction of a Universal Basic Income (UBI) has been relaunched in 2016 after the proposal 1
of the French presidential candidate Benoît Hamon and recommended by the French economist Thomas Piketty. Given the remarkable changes in the labor market (in particular, the increase in job insecurity and job destruction) observed during the last decades as a consequence of globalization and robotization, the introduction of a Universal Basic Income can be perceived as a powerful tool in order to provide all individuals a minimum grant (Stiglitz, 2017). The UBI, which is provided to all individuals in the same amount and without conditions,1 can be interpreted as a financial
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compensation for the reduction in working time that contributes to a more equitable allocation of the resources in the economy.
However, the introduction of the UBI (or other similar tax systems like the negative income tax
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or the flat tax combined with some income support mechanism) is controversial. The introduction of the UBI has the advantage to be simple and transparent to adopt and
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necessitates low administrative costs. The major drawbacks of this reform, even though it would permit a significant reduction in income inequalities, is that it is very costly and could induce
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people to exit the labor market or to reduce the number of hours worked since the reform induce both a negative income effect, given by the transfer, and a negative substitution effect due
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to the higher taxes that would be needed to finance it (Colombino; 2015a). Consequently, the reform could induce an important equity-efficiency tradeoff as found in the literature (see, for
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instance, using a microsimulation approach, Scutella, 2004, for Australia, Horstschräer et al., 2010, for Germany, Clavet et al., 2013, for Québec, Colombino, 2015b, for Italy, and, using a CGE
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approach, Yunker (2013) for the United States).2 In addition, the cost of the reform, which depends on the chosen amount that will be given to each individual, is in general very high, which would imply higher taxes and the consequent negative effect on labor supply. To avoid excessive labor supply inefficiencies, the UBI could be coupled with a flat income tax, which has For a complete overview about the Universal Basic Income, see Van Parijs (2004). Concerning the evaluation of flat tax reforms, Duncan (2014) for Russia and Paulus and Peichl (2009) for Western Europe find that such reforms can stimulate labor supply and reduce tax evasion. The main problems of these reforms are that they increase income inequalities and that the tax burden is in general shouldered by the middle class. 1 2
2
been found to stimulate labor supply and reduce tax evasion in Russia (Duncan, 2014) and Western Europe (Paulus and Peichl, 2009) The main problems of these reforms are that they increase income inequalities and that the tax burden is in general shouldered by the middle class. The aim of this article is to evaluate the effects of a revenue-neutral reform introducing a universal basic income scheme coupled with a flat income tax on the French economy. The proposed reform replaces the existing minimum income benefit, several other conditional
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benefits and the existing progressive income taxation. For a proper evaluation, it is thus extremely important to precisely quantify the cost of the introduction of the UBI, the fiscal reforms necessary to finance its introduction and the economic consequences, both at the individual level and at the macro level, of such shocks. This is why, in our analysis, we use an
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integrated Micro-Macro model3 which consists of a microsimulation model (that includes an
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arithmetical model for the French fiscal system and two behavioral models used to simulate the individual consumption behavior and the labor supply choices) and of a multisectoral and static
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CGE model. Our Micro-Macro model allowed us to evaluate the long-term macroeconomic and distributional effects of this tax reform, including its impact on: (i) macroeconomic indicators
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such as GDP, employment, real wages, the competitiveness of domestic firms, and the purchasing power of households, (ii) sectoral production and the allocation of production factors across sectors, (iii) individual choices concerning labor supply and consumption, and (iv) income
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distribution, poverty and inequality.
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Our simulation results show that the overall effects of this reform would be quite positive. The reform permits not only a significant reduction in income inequality and poverty, but also a
The integration between microsimulation models and general equilibrium models appears very appealing since it allows to avoid the shortcomings of both types of models, i.e. that in microsimulation models the analysis is carried out in a partial equilibrium framework (in the sense that the effects on the individual behavior are computed without taking into account the general equilibrium effects that the change in individual behavior determines at the macro level) and that macro general equilibrium models are mainly based on the representative agent paradigm. In fact, in integrated Micro-Macro models, the individual effects are computed by taking into account the general equilibrium effects and the macro effects are computed by taking into account individual heterogeneity at a very detailed level. 3
3
moderately positive effect at the macroeconomic level. This is explained by the fact that the elasticity of the labor supply with respect to the net real wage and with respect to other nonlabor incomes are both very low in France. In other words, the tax reform induces a limited effect on labor supply which, coupled with the positive effect on the labor demand, significantly reduces unemployment. Considering that the reform produces a redistribution of income from rich people (characterized by high propensity to save) to poor people (characterized by low propensity to save), another important implication of the reform is that consumption increases at the national level, stimulating the aggregate demand. Our CGE model takes into account a non-
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standard macro closure which is between the standard neoclassical closure (where investments are savings-driven) and the Keynesian closure (where investments are fixed at an exogenous level). Thus, in our CGE model, the increase in aggregate demand has a positive effect on real
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GDP and on employment. In addition, the reduction in the unemployment rate permits an additional positive effect by reducing inequalities and poverty. Our main result is thus that the
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equity-efficiency tradeoff would not be produced for the proposed reform of UBI combined with a flat tax in France. This result can be achieved thanks to the relatively small amount of the
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benefit, which does not require an excessive increase in income tax rates, and the removal of efficiency losses implied by the progressive income taxation schedule and other non-linear
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conditional benefits.
This article is organized as follows. Section 2 presents the main features of our Micro-Macro
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model. Section 3 presents the simulation results of the introduction of the UBI combined with a
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flat tax. Section 4 concludes.
2
The Micro-Macro model
4
In this section, we briefly present our Micro-Macro model for the French economy which is composed by a micro component, the SYSIFF 2006 (Système d’Imposition Fiscale Français de 2006), and a macro component, a multisectoral CGE model.4
2.1 The Macro component The macro component of our Micro-Macro model is a multisectoral and static CGE model with two foreign zones: the Eurozone and the rest of the world. The model, calibrated using the 2006
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French input-output dataset provided by French National Statistical Office (Insee), is characterized by an innovative closure rule which will be described later on.
As shown in Table 1, the CGE model includes 19 sectors, 11 of which correspond to the sectors
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used in the microsimulation model concerning the consumption decisions. For each sector, we use a multi-stage CES production function. In the first stage, output depends on the demand of
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total intermediate good, labor and capital. In the second stage, the total intermediate good depends on the intermediate goods sold by each sector. In the third and the fourth stages,
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quantities coming from the domestic market, from the Eurozone and from the rest of the world are accounted for.
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Concerning households, we consider one representative agent who earns (net of taxes) labor and capital incomes perceived in France and abroad, and transfers from the government. An
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endogenous fraction of the disposable income is saved and the complementary fraction is used to buy goods and services. The consumption level of each good is exogenous and fixed at the
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level determined by the micro component model. Then, the representative agent chooses the optimal repartition of the consumption demand of each good between domestic goods and foreign goods coming from the Eurozone and from the rest of the world. Concerning the government, public revenues come from direct taxes on labor and capital incomes, indirect taxes on production and on the value added, and employees’ and employers’ 4
For a full description of the model, see Magnani et al. (2017).
5
social contributions. Government expenditures are given by the total public expenditure (supposed to be equal to a constant fraction of GDP), interests on the public debt and transfers to households. The difference between public revenues and expenditures determines public savings. The proposed CGE model differs from standard specifications in two aspects. First, the model is solved by considering several variables as exogenous: the total quantity of labor supplied; the consumption demand of goods and services; the total amount of employees’ and employers’
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social contributions; the total amount of income taxes; the total amount of transfers from the government. However, it is important to note that these variables are not exogenous in our Micro-Macro model, but determined by the micro component, which takes into account full individual heterogeneity.
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The second non-standard element, which in our opinion is a relevant innovation with respect to
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the existing literature is the macro closure rule. The neoclassical closure, that is the most frequently used in general equilibrium models, implies that investments are determined by
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aggregate savings (in other words, investments are savings-driven). The neoclassical closure implies that a shock or a policy reform that increases one component of the aggregate demand
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induces an implausible negative effect on investments, while the effect on the GDP is quite negligible since GDP depends on the supply of the production factors that are assumed to be fully employed in the economy. The only effect on GDP would come from a reallocation of
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production factors across sectors. Thus, a shock or a policy reform that increases one component
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of the aggregate demand can stimulate real GDP only by removing the hypothesis of fullemployment of production factors and by assuming that involuntary unemployment is produced, according to the Keynesian view, by the weakness in aggregate demand. In contrast, the Keynesian closure implies that investments are fixed at a predetermined level (see, for instance, Alvaro and Polo 2012) while the unemployment rate is endogenously determined in order to satisfy the macroeconomic equilibrium condition between investments and aggregate savings. This implies that the equilibrium determined at the macro level may be an under6
unemployment equilibrium, if the aggregate demand is insufficient. However, also the Keynesian closure presents a major shortcoming since the fall in the unemployment rate induced by an expansionary reform would be excessively large. This is why we propose to use a closure rule which is between the neoclassical and the Keynesian ones (Magnani, 2015), introducing an investment function, estimated using yearly French data from 1946 to 2012 provided by Insee (Magnani et al., 2018), which takes into account the (partial) crowding-out effect on investments produced by a change in the components of the aggregate demand.
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Finally, the exchange rate is assumed to be exogenous, implying that the balance of payments determines the flow of foreign assets to France. The numéraire is the domestic price index.
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2.2 The Micro component
The micro component of the proposed Micro-Macro model is an arithmetical microsimulation
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model for the French fiscal system integrated with two behavioral models concerning consumption and labor supply decisions, the SYSIFF 2006 (Système d’Imposition Fiscale Français,
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fully described in Magnani et al., 2018). It is based on the 2006 French Household Budget Survey (BDF 2006), a sample of families that are representative of the French population. The
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arithmetical part of the model simulates, for each of these families, social contributions, income taxes, VAT, local taxes and social benefits due or to be received by the state. The behavioral part
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includes two different microsimulation models concerning the individuals’ consumption and labor supply decisions.
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Individuals’ consumption decisions are simulated starting from the estimation of a consumption demand system based on the Almost Ideal Demand System proposed by Deaton and Muellbauer (1980) and extended (as in Banks et al., 1997) introducing a quadratic income term. Observed heterogeneity is accounted for through an income translating function (Gorman, 1976). The system of demand equations is estimated simultaneously by Full Information Maximum Likelihood, and a generalized Heckman correction for zero expenditures (Shonkwiler and Yen, 7
1999) is applied. To be consistent with the CGE model, consumption goods are aggregated into 11 categories: food, drinks, tobacco, clothing, housing, health care, transport/energy, communication, leisure, food out of home, and other goods. The estimation results are presented in Magnani et al. (2018). This econometric model permits to quantify the consumers reactions to a shock or a policy, depending on the effect on the equilibrium prices (determined by the macro component) and on the individual’s disposable income (determined by the fiscal rules embedded in the arithmetical model and the labor supply decisions). Consumption decisions are
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determined using family-specific rather than average price and income elasticities. The microsimulation model for individuals’ labor supply decisions is based on the estimation of a discrete choice labor supply model à la Van Soest (1995) extended with involuntary unemployment (Magnac, 1991). The estimation of a discrete choice model allows to directly
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estimate the utility function parameters without the need of a Marshallian labor supply function, which would be impossible to obtain because of the non-linearities of the French fiscal system,
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and thus of the budget set. Discrete choice models have the advance of capturing behavioral
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change in corner solution, accounting for market rigidities and avoiding the computational and analytical difficulties arising from non-linear and non-convex budget constraints, since the budget constraint is computed by the arithmetical model and introduced directly into the utility
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function.
In our model, individuals can choose among four work alternatives: not to work (0 hours), 50%
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part-time (18 hours), 80% part-time (28 hours), and full time (36 hours). Because not
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everybody chose exactly one of these options, we set-up intervals within which the assigned choice is one of the four and, to avoid inconsistencies, hourly wages are computed on the hours of work corresponding to the assigned choice. The estimates of labor supply are performed on a sub-sample of potential wage earners (retired people, self-employed and individuals younger than 20 or older than 60 years are excluded)
8
separately for single men, single women and couples.5 Of course, in order to compute the disposable income for the non-observed alternatives, it is necessary to generate a potential salary for the unemployed, estimated using a Heckman correction model (Heckman, 1979). With respect to the standard model proposed by Van Soest (1995), which implicitly assumes that non-working people choose not to work, in our setting unemployment may be involuntary, as in Magnac (1991), Bingley and Walker (1997), and Haan and Uhlendorff (2007). In our sample, 19.7% of individuals do not work and 6.3% of the sample is involuntarily unemployed,
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implying that the unemployment rate is 7.3%. Thanks to this feature, if a shock or reform modifies the unemployment rate at the macro level, some individuals may find a job if the unemployment rate decreases, or lose their job if the unemployment rate increases, depending on their estimated probability of being involuntary unemployed.
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As detailed in Magnani et al. (2018), the discrete choice model is estimated using a Multinomial
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Logit regression, such that each individual chooses the alternative that maximizes his utility. Once the model is estimated the correct prediction is quite large, 88% for single men, 72% for
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single women and 53% for couples. To ensure that 100% of correct prediction is achieved, 300 extreme-value distributed stochastic terms are extracted for each choice, conditioned on the fact
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that the prediction corresponds to the observed choice. This error term captures the unobservable heterogeneity remaining after estimating the model. The 300 extractions ensure the statistical properties of labor supply predictions once an exogenous shock or a fiscal reform
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modifies the available income of the individuals.
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Overall, the micro component permits to quantify the individual’s reaction to a shock or a policy in terms of consumption, labor supply and work status and, consequently, in individuals’ disposable income and consumption choices. These effects depend on the change in the equilibrium prices and real wage (determined in the macro component), on the individual’s
The work decision for couples is conducted jointly by considering the four alternatives described above for the woman and two alternatives (full time work or not to work) for the man, for a total of 8 combinations. 5
9
disposable income for each labor supply alternative (determined in the arithmetical microsimulation model), and on the unemployment rate (determined in the macro component).
2.3 Integration of the Macro and Micro components The integration of the Macro and Micro components is performed using an iterative approach. The model is composed by the SYSIFF 2006 microsimulation model for the micro component and a static multisectoral CGE model for the macro component. An Excel VBA macro is the heart
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of the whole Micro-Macro model and links all the models together allowing for a complete micro-macro integration. It is responsible (i) to run the simulation in the CGE model, to read the macro results and pass them to SYSIFF 2006; (ii) to load the micro dataset into SYSIFF 2006, to
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read the results of the arithmetical model and pass them to the labor supply behavioral model; (iii) to read the results concerning labor supply and pass them to the consumption behavioral
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model; (iv) to aggregate the micro effects on disposable income, consumption, labor supply, public transfers and taxes collection, and to pass them to the CGE model which computes again
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the macro effects; (v) to iterate between the CGE model and SYSIFF 2006 until the variations of all relevant variables are sufficiently stable. When the fixed point is reached, the VBA macro
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stores the final results that are further used to analyze the effects on income distribution,
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inequality and poverty.
3
Simulation analysis
The objective of our article is to evaluate the effects of a revenue-neutral reform of the French 2006 welfare state introducing a universal basic income scheme combined with a flat income tax. This reform is financed by the elimination of the existing minimum income benefit, several other conditional benefits and the existing progressive income taxation.
10
The baseline is the 2006 French welfare state, a highly complex set of conditional benefits that besides the minimum income benefit (RMI),6 characterized by a baseline benefit of about 5,196 euros per year and 0%, 50% or 100% withdrawal rate (depending on how long one has been receiving the benefit), includes several other conditional benefits, such as family benefits, a housing benefit, schooling benefits, minimum pensions, an in-work tax credit, several tax reductions, and a progressive income tax scheme based on an equivalent income (the equivalence scale applied is called quotient familial) and 7 income tax brackets, ranging from 0% to 48.09% of the equivalent taxable income.7 The proposed reform greatly simplifies the
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existing system by replacing all existing benefits, tax reductions and tax credits with an unconditional basic income designed to be revenue neutral, that is no further deficit is generated on the day of effectiveness of the reform.8 To permit the highest level of income redistribution,
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we consider a flat tax rate corresponding to the maximum of the existing system, i.e. 48.09% of the equivalent taxable income. Note, however, that after taking into account the system of tax
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abatements and other fiscal mechanisms for the calculation of the taxable income, the tax rate is, on average, about 15% of the gross income. Under these conditions, the unconditional basic
3.1 Macro results
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income that can be distributed to each French citizen amounts to 2,038 euros per year.
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The macro results are mostly driven by the effects on the individual behavior concerning labor supply and consumption, which will be detailed below. Given that the estimated labor supply
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elasticities are relatively small, and combined with the efficiency gains produced by the substitution of a progressive taxation with a flat tax, a change in net wages and non-labor incomes induces a relatively small effect on the quantity of labor supplied by French families. This implies that the equity-efficiency trade-off typically produced by redistributive reforms Canova et al. (2015) used the same Micro-Macro simulation model to evaluate the effects of the 2008 reform which removed the RMI and introduced a less distortive benefit, the RSA. 7 For more details on the French 2006 fiscal system, see Canova et al. (2009). 8 The public deficit can be increased or reduced, though, as a consequence of behavioral changes (in labor supply or consumption) and/or market adjustments (in wages, prices, unemployment, etc.). 6
11
does not emerge for the proposed reform of the French fiscal system. In addition, the policy reform proposed in our article implies a redistribution of incomes from rich individuals with low propensity to consume to poor individuals with high propensity to consume. Thus, at the national level, the reform produces an increase in aggregate consumption. In the case of a neoclassical closure rule, the increase in consumption would produce a strong crowding-out effect on investments and a negligible effect on GDP. In contrast, the closure rule used in our CGE model implies that the increase in aggregate consumption produces only a partial crowding-out effect on investments. Thus, aggregate demand increases, which stimulates real GDP. Given that
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the capital stock is exogenous, the increase in real GDP is made it possible thanks to the reduction in unemployment.
More precisely, as shown in Table 2, the reform would increase aggregate consumption by 0.7%
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(determined in the microsimulation model), reduce investments by 1%, increase real GDP by 0.2% and reduce the unemployment rate by 1 percentage point. The increase in labor supply,
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which implies a reduction in the capital/labor ratio and, thus, in labor productivity, produces a
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reduction in the real wage (-0.2%) while the real interest rate remains essentially unchanged. In addition, given that consumption increases more than incomes, the private saving rate decreases
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by 0.5 p.p.
Concerning the effects at the sectoral level, presented in Table 3, the effect on output and the demand for labor and capital clearly depends on the effect, determined in the microsimulation
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model, on consumption. Thus, output increases in those sectors (Tobacco and Leisure) where
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consumption increases the most. In contrast, the reduction in the output level in the Construction sector and the Mechanic sector (-0.8% and -0.3%, respectively) is explained by the fall in investments (-1%).
3.2 Microeconomic results
12
The tax reform proposed in our article produces important effects on individual choices and on the income distribution, inequality and poverty. A particularly relevant aspect of the universal basic income reform is its impact on the labor supply. It is well known that minimum income schemes may be largely inefficient in this respect, especially when the withdrawal rate is large. Imagine that an unemployed receive the minimum income (about 5,000 euros) and finds a job. With the RMI, after 12 months each euro gained working is withdrawn from the benefit, rendering the possibility of working for small salaries
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less attractive respect to not working and receiving the minimum income. With the unconditional basic income, on the other hand, these kind of incentives are not at work, and all money gained from work add to the benefit, rendering part-time and low pay jobs more attractive. The cost of a universal benefit, however, is very large, and the removal of all other
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kind of benefits is not sufficient to finance a decent amount of benefit. In our simulations, in order to be able to pay for the costs of a basic income of about 2,000 euros per year, we had to
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impose a flat income tax corresponding to the highest marginal rate of the existing system,
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48.09%. As previously said, it is important to note that after taking into account the system of tax abatements and other fiscal mechanisms for the calculation of the taxable income, the average tax rate is about 15% of the gross income. Such a large income tax rate could reduce the
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incentives to work, in particular for qualified and full-time workers. However, we find that the negative effect on the quantity of labor that is voluntarily supplied by French people is quite
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modest. This is explained by the fact that the estimated labor supply elasticities (with respect to
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the net wage and to the non-labor incomes) are very low. In addition, it is important to note that in our Micro-Macro simulation model the effect on labor supply depends not only on individual choices, but also on the effect determined at the macro level concerning the demand side. As shown in the previous section, unemployment decreases thanks the fact that the fiscal shock stimulates aggregate demand and real GDP. In this case, even if some people decide to work less given that the reform reduces the incentives to work for full-
13
time workers, the reduction in unemployment over-compensates the negative effect and, at the end, the total labor supply increases. The mechanisms described above is at work in our sample, as shown in Table 4 which reports the work status transition matrices for singles and couples.9 Looking at singles, a relevant proportion of non-workers do work after the reform (about 1.1% of singles), but at the same time some full-time workers either reduce or stop working (about 0.4% of singles). The net effect is positive, with the proportion of individuals that do not work reducing from 15.7% to
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14.9%. There is a slight increase in 80% part-time workers (from 8.2% to 8.4%) and an increase in full-time workers (from 69.4% to 70.1%). A similar pattern is followed by couples. The number of couples in which both members don’t work reduces to 2.7% (from 3.1%), and those in which one member does not work (either the husband or the wife) reduces to 20.6% from
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21.6%. At the same time, the number of couples in which both work full time increases only by 0.1 percentage point, because several bi-active couples decide to reduce their labor supply: in
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part-time solution after the reform.
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about 1% of couples one member stops working, and in about 0.6% of couples the wife opts for a
The effect on consumption choices depends on the change in the disposable income induced by
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the reform and the consequent labor supply variation (determined using the microsimulation model) and on the change in equilibrium prices (determined in the CGE model). As shown in Table 5, the reform brings to a moderate increase in consumption, especially of Tobacco and
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Communications, clearly driven by the increase in consumption of poor families and single
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males who present high propensity to consume. The analysis of the effects of the tax reform on income inequality and poverty is based on the computation of the equivalent disposable income at the individual level. The effect on the equivalent disposable income clearly depends on the elements of the tax reform (introduction of the UBI, elimination of the previous benefits and switch from the previous progressive tax In this table, each cell shows the percentage of individuals that work the amount of hours before the reform (on the left) and those after the reform (on the top). The cells on the diagonal (highlighted in grey) indicate the percentage of individuals who did not change their labour supply with the reform. 9
14
system to a flat tax system), but also on the change in the real wage (determined at the macro level) and the change in the work status (determined at the individual level). Overall, as shown in Table 6, it is possible to note that the reform allows a general improvement in poverty and inequality. The number of poor families reduces by more than 17%, and the intensity of poverty is also reduced, although to a smaller extent, about 10%. This is quite substantial, considering that the reform proposes a universal basic income which is substantially smaller than the minimum income guaranteed by the 2006 fiscal system. Both of them, however,
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lie below the poverty line (set at about 6,700 euros) and the substantial poverty reduction is mostly driven by the increased income of the working poor, who receive a substantial income boost with the reform, and by the reduction in unemployment. Indeed, looking at Figure 1, there is a clear shift of equivalent disposable incomes up to 10,000 euros toward larger values. This
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brings a noticeable reduction in inequality as well, with the Gini coefficient reducing by 12%, down from 0.29 to 0.257, as well as the interdecile ratio (the ratio between the average income
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of the last decile and that of the first decile of the income distribution) that reduces by almost
the last decile by 7%.
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17% thanks to an increase of incomes of the first decile by 12% and a reduction of incomes of
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Figure 2 highlights even more the strong redistributive power of the reform. It plots the average gain for each level of baseline equivalent income. The line shows substantial positive gains for equivalent disposable incomes below 15,000 euros and substantial and increasing losses for
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higher incomes, stabilizing at about 35,000 euros. This implies a large loss, in relative terms, for
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the middle class, which loses about 10% of disposable income, while richer families, having similar absolute losses, lose a smaller share of their disposable income, about 5% for families with a 60,000€ equivalent income. A more disaggregated analysis of winners and losers, presented in Table 7, reveals that overall winners and losers are almost evenly distributed, but the average gain for the winners represents a larger proportion of their income than the average loss for the losers. This brings to
15
a net gain of about 4.4% of disposable income. As highlighted in the previous paragraph, those who benefit more from the reform are the poor, 76.5% of whom have an income that is 56.3% larger after the reform. There are still losers among the poor (about 24.6%), which are mostly made of non-working families that were getting the full amount of the minimum income (more than 5,000 euros) and now receive only the basic income (about 2,000 euros per year), and cannot start working. Those who gain less from the reform are singles (even with children), while couples and the
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elderly have slightly better results. It is worth noting that the proposed reform substitutes the generous system of family benefits with the basic income, which is given also to children. Thus, on one hand large families have a substantial boost in income because each member receives the basic income. On the other hand, families with young children may end up losing from the
4
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reform because losing the more generous child benefits.
Conclusions
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In this article we present a Micro-Macro simulation model applied to the French economy to evaluate the effects a revenue-neutral reform of the French 2006 welfare state. The reform
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analyzed in this article consists in replacing the existing benefits and progressive income taxation with a universal basic income scheme and a flat income tax. We show that overall the
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effects are quite positive. In fact, the reform induces an increase in the disposable income of poor individuals who present a high marginal propensity to consume, while richer individuals
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(who present low marginal propensity to consume) are penalized by the reform. At the aggregate level, the reform induces an increase in aggregate consumption which stimulates real GDP and reduces unemployment. At the individual level, the redistribution of incomes from rich individuals to poor individuals clearly reduces inequalities and poverty. In terms of labor supply, the introduction of a universal income coupled with a flat tax induces some people to reduce the number of hours worked. However, the negative effect is overcompensated by the reduction in 16
unemployment since the proposed reform stimulates aggregate demand and GDP. At the end, the proposed reform induces an overall increase in labor supply which substantially contributes
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na
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to the reduction of inequality and poverty.
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References Banks, James, Blundell, Richard and Lewbel, Arthur, (1997), Quadratic Engel Curves And Consumer Demand, The Review of Economics and Statistics, 79, issue 4, p. 527-539. Bingley, Paul and Walker, Ian, (1997), The Labour Supply, Unemployment and Participation of Lone Mothers in In-Work Transfer Programmes, Economic Journal, 107, issue 444, p. 13751390. Canova, Luciano, Piccoli Luca, and Spadaro, Amedeo, (2009), SYSIFF 2006: a microsimulation model for French tax system. MicroSimula - Paris School of Economics. Canova, Luciano, Piccoli Luca and Spadaro, Amedeo, (2015) An ex ante evaluation of the Revenu de Solidarité Active by micro-macro simulation techniques, IZA Journal of European Labor Studies, Springer, vol. 4(1), p. 1-20.
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Clavet, Nicholas-James, Duclos, Jean-Yves and Lacroix, Guy, (2013), Fighting Poverty: Assessing the Effect of Guaranteed Minimum Income Proposals in Québec, Canadian Public Policy, 39, issue 4, p. 491-516 . Colombino, Ugo, (2015a) Is unconditional basic income a viable alternative to other social welfare measures? IZA World of Labor, 128.
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Colombino, Ugo, (2015b), Five Crossroads on the Way to Basic Income: An Italian Tour, Italian Economic Journal, 1, Issue 3, p. 353-389.
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Colombino, Ugo and Islam, Nizamul, (2018), Basic Income and Flat Tax: The Italian Scenario", CESifo Forum, 19, issue 3, p. 20–29.
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Duncan, Denvil, (2014), Behavioral responses and the distributional effects of the Russian ‘flat’ tax, Journal of Policy Modeling, 36, issue 2, p. 226-240. Deaton, Angus S. and Muellbauer, John, (1980), An Almost Ideal Demand System, American Economic Review, 70, issue 3, p. 312-326.
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Haan, Peter and Uhlendorff, Arne, (2013), Intertemporal Labor Supply and Involuntary Unemployment, Empirical Economics, 44, issue 2, p. 661-683.
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Horstschräer, Julia, Clauss, Markus and Schnabel, Reinhold, (2010), An unconditional basic income in the family context: Labor supply and distributional effects, No 10-091, ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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Gorman, William Moore, (1976). Tricks with utility functions. In M. J. Artis and A. R. Nobay (Eds.), Proceedings of the 1975 AUTE Conference, Essays in Economic Analysis. Cambridge: Cambridge University Press. Heckman, James, (1979), Sample Selection Bias as a Specification Error, Econometrica, 47, 153161. Magnac, Thierry, (1991), Segmented or Competitive Labor Markets, Econometrica, 59, issue 1, p. 165-187. Magnani, Riccardo, (2015), The Solow Growth Model Revisited. Introducing Keynesian Involuntary Unemployment, CEPN Working Papers, HAL.
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Magnani, Riccardo, Piccoli, Luca, Carré, Martine and Spadaro, Amedeo, (2018), A Micro-Macro simulation model applied to the French economy. The case of a euro’s real depreciation", in Perali Federico and Scandizzo Pasquale Lucio, The New Generation of Computable General Equilibrium Models, Springer International Publishing. Paulus, Alari and Peichl, Andreas, (2009), Effects of flat tax reforms in Western Europe, Journal of Policy Modeling, 31, issue 5, p. 620-636. Scutella, Rosanna, (2004), Moves to a Basic Income-Flat Tax System in Australia: Implications for the Distribution of Income and Supply of Labour, Melbourne Institute Working Paper Series, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne. Shonkwiler, J. Scott and Yen, Steven T., (1999), Two-Step Estimation of a Censored System of Equations, American Journal of Agricultural Economics, 81, issue 4, p. 972-982.
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Stiglitz, Joseph, (2017), The coming great transformation, Journal of Policy Modeling, 39, issue 4, p. 625-638. Van Parijs, Philippe , (2004), Basic Income: A Simple and Powerful Idea for the Twenty-First Century, Politics & Society, 32, issue 1, p. 7-39. Van Soest, Arthur, (1995), Structural Models of Family Labor Supply: A Discrete Choice Approach, Journal of Human Resources, 30, issue 1, p. 63-88.
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Yunker James A., (2013), The Basic Income Guarantee: A General Equilibrium Evaluation, Basic Income Studies, 8, issue 2.
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na
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Figure 1: Effect on the distribution of the equivalent disposable income
20
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na
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re
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Figure 2: Distribution of gain by equivalent income
21
Table 1: List of the sectors in the CGE model
Food
Agriculture, hunting, forestry, fishing. Food
2
Beverage
Beverages
3
Tobacco
4
Energy
5
Mineral products
6
Textile
Tobacco Mining and quarrying. Coke, refined petroleum products and nuclear fuel. Production, collection and distribution of electricity. Manufacture of gas; distribution of gaseous fuels through mains. Steam and hot water supply. Collection, purification and distribution of water Chemicals excluding pharmaceuticals. Rubber and plastics products. Other non-metallic mineral products Textiles, textile products, leather and footwear
7
Housing
Wood and products of wood and cork
8
Mechanic industry
9
Electric industry
10
Metallurgy
11
Health
Machinery and equipment, nec Office, accounting and computing machinery. Electrical machinery and apparatus. Medical, precision and optical instruments Iron and steel. Non-ferrous metals. Fabricated metal products, except machinery and equipment Health and social work. Pharmaceuticals. Education
12
Construction
13
Transports
14
Hotels and restaurants
15
Leisure
16
Communications
17
Public administration
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re
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Public admin. and defense; compulsory social security Real estate activities. Renting of machinery and Non-financial services equipment. Computer and related activities, Research and R&D and development. Other business activities Financial services Finance and insurance
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19
Construction Motor vehicles, trailers and semi-trailers. Building and repairing of ships and boats. Aircraft and spacecraft. Railroad equipment and transport equip nec. Manufacturing nec; recycling. Land transport; transport via pipelines. Water transport. Air transport. Supporting and auxiliary transport activities. Activities of travel agencies Hotels and restaurants Pulp, paper, paper products, printing and publishing. Radio, television and communication equipment. Other community, social and personal services. Private households with employed persons and extra-territorial organizations and bodies Post and telecommunications
na
18
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1
22
Table 2: Aggregate effects on the main macroeconomic variables (Variation in %)
0.2
Unemployment rate
(Variation in p.p.)
-1.0
Labor
(Variation in %)
0.3
Capital
(Variation in %)
0.0
Real wage
Variation in %)
-0.2
Real rate of remuneration of capital
(Variation in p.p.)
0.0
Private consumption
(Variation in %)
0.7
Investments
(Variation in %)
-1.0
Government expenditure
(Variation in %)
0.2
Private saving rate
(Variation in p.p.)
-0.5
(Variation in p.p.)
-0.1
re
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Real GDP
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na
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Public deficit / GDP
23
Table 3: Sectoral effects on some macro variables (in %)
Beverage
3
Tobacco
4
Energy
5
Mineral products
6
Textile
7
Housing
8
Mechanic industry
9
Electric industry
10
Metallurgy
11
Health
12
Construction
13
Transports
14
Hotels and restaurants
15
Leisure
16
Communications
17
Public administration
0.1
0.2
0.1
0.2
-1.0
0.1
0.1
0.0
0.1
3.8
3.9
3.7
4.0
0.0
0.1
0.0
-1.0
0.1
0.1
0.0
-1.0
0.1
0.2
0.0
0.1
0.1
-0.1
-0.3
-0.2
-0.4
0.0
0.0
-0.2
0.0
0.0
0.5
0.6
0.6
-1.0
1.6
-1.0
0.4
0.2
1.4
-1.0 -1.0 -1.0
0.1
0.2
0.0
0.1
0.6
0.7
0.4
1.1
2.5
2.6
2.4
5.7
0.2
0.3
0.0
Non-financial services and 0.0 R&D 0.4 Financial services
0.1
-0.1
0.5
0.3
na
-1.0 -1.0
-0.7
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0.3
0.1
-0.2 0.4
-1.0
-1.0
-1.0
-1.1 0.8
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19
Investments
-0.8
ur
18
Consumption
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2
Capital
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Food
Labor
re
1
Output
24
Table 4: Work status transition matrices for singles and couples Singles
Before reform
the
After the reform 0
18
24
36
Total
0
14.6
0.0
0.2
0.9
15.7
18
0.0
6.6
0.0
0.1
6.7
24
0.1
0.0
8.2
0.0
8.2
36
0.2
0.1
0.0
69.1
69.4
Total
14.9
6.7
8.4
70.1
100
0-18
0-24
0-36
36-0
36-18
0-0
2.8
0.0
0.0
0.1
0.2
0.0
0-18
0.0
0.8
0.0
0.0
0.0
0-24
0.0
0.0
0.7
0.0
0.0
0-36
0.0
0.0
0.0
2.6
36-0
0.1
0.0
0.0
0.0
36-18
0.0
0.0
0.0
0.0
36-24
0.0
0.0
0.0
36-36
0.1
0.0
0.0
Total
2.7
36-36
Total
0.0
0.0
3.1
0.1
0.0
0.0
0.9
0.0
0.0
0.0
0.7
0.0
0.0
0.2
2.9
17.7
0.2
0.2
0.5
18.7
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re 0.0
0.1
9.7
0.0
0.0
9.9
0.0
0.3
0.1
14.0
0.1
14.5
0.1
0.9
0.4
0.2
47.6
49.4
0.7
2.4
18.2
10.9
14.8
49.5
100
na 0.7
36-24
-p
0-0
Jo
ur
Before the reform
After the reform
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Couples
25
oo
f
Table 5: Effect on income, consumption and prices Family type
Income
Food
Beverages
Tobacc o
Clothing Housing
Health
Transport Comm. s
Recreatio n
Hotels
Fin. serv.
All families
4.4%
0.2%
0.1%
5.6%
-0.7%
3.2%
2.0%
9.3%
1.7%
0.3%
1.8%
Poor
36.3%
3.8%
2.9%
44.9%
31.4%
28.8%
95.0%
18.9%
10.9%
16.1%
Couples with 1 child
4.4%
0.5%
1.0%
Couples with 2 children
5.6%
1.9%
2.4%
Couples with 3 children or 3.0% more
0.8%
Elderly (aged more than 60)
pr 11.4%
e-
1.6% 1.0%
1.4%
0.9%
1.6%
0.4%
1.0%
0.7%
0.5%
2.4%
2.6%
3.1%
2.9%
1.9%
4.0%
2.3%
1.4%
1.5%
1.2%
0.9%
2.2%
1.8%
1.5%
1.4%
1.4%
1.5%
1.3%
0.9%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.00%
0.01%
-0.01%
0.02%
-0.01%
-0.02% -0.02%
-0.01%
-0.01%
-0.02% 0.00%
na l
Pr
1.0%
Jo ur
Price variations
7.3%
0.8%
26
Table 6: Main microeconomic effects on poverty and income distribution Reform
Variation
Headcount ratio
9.05%
7.49%
-17.2%
Poverty gap ratio
2.53%
2.28%
-9.8%
Gini index
0.2909
0.2567
-11.8%
10th percentile
6867
7682
11.9%
50th percentile
13363
13753
2.9%
90th percentile
24750
23029
-7.0%
90th / 10th perc.
3.60
3.00
ro of
Baseline
Jo
ur
na
lP
re
-p
-16.8%
27
Table 7: Winners and losers from the reform Winners
Losers
Gain
Loss
Net gain
All families
51.7%
48.6%
17.2%
-9.1%
4.4%
Poor
75.4%
24.6%
56.3%
-23.0%
36.3%
Single males
26.6%
73.4%
36.9%
-9.5%
2.5%
Single females
39.9%
60.1%
19.7%
-9.4%
2.1%
Singles without children
53.3%
46.7%
12.7%
-22.9%
-4.0%
Couples without children
59.2%
40.8%
15.3%
-7.5%
6.0%
Couples with 1 child
57.2%
42.8%
13.5%
-7.8%
4.4%
Couples with 2 children
63.3%
36.7%
13.2%
-7.5%
5.6%
60.7%
39.3%
10.8%
60.3%
39.7%
17.9%
Couples with children
3
or
more
-9.1%
3.0%
-8.7%
7.3%
Jo
ur
na
lP
re
-p
Elderly (aged more than 60)
ro of
Family type
28