The OECD’s reiteration of previous flawed research on Citizen’s Basic Income

The OECD’s 2019 employment outlook publication, The Future of Work, is accompanied by a ‘transition agenda’. The chapter ‘Left on your own? Social protection when employment markets are in flux’ contains a section on Citizen’s Basic Income:

Moving towards greater universality through a form of basic income (BI) is an interesting proposal in this debate that has received considerable attention. No country has introduced a BI as a principal pillar of SP [social protection], however, and replacing large parts of existing support systems with a universal payment would be a major change. OECD simulations show that an unconditional payment to everyone at meaningful but fiscally realistic levels would require large tax rises as well as reductions in most current benefits, and would often not be an effective tool for reducing income poverty (OECD, 2017; Browne and Immervoll, 2017). Some disadvantaged groups would lose out when existing benefits are replaced by a BI, illustrating the downsides of SP without any form of targeting at all. In view of the immediate fiscal and distributional consequences of a fully comprehensive BI, reforms towards more universal income support would realistically need to be introduced gradually for specific groups (such as youth) or would need to be restricted in other ways. It would also require a parallel debate on how to finance a more equal sharing of the benefits of economic growth. From a broader economic-policy perspective, a downside of universal support is that, unlike out-of-work or needs-based benefits, it does not act as an automatic stabiliser: since it is paid regardless of income or employment status, spending levels do not go up during a downturn, and they do not fall during an upswing. A number of assumptions need to be questioned.

As we wrote when the OECD paper cited here was published in 2017:

The scheme envisaged would abolish tax allowances and ‘most existing types of cash benefits’, and would be revenue neutral. … In its final section the paper does discuss the possibility of implementing a Basic Income scheme that leaves in place means-tested benefits and recalculates them to take into account each household’s Basic Incomes and any changes in net earnings, but it then does no further work on such an option. This is a pity, as to do so would have enabled the researchers to respond to many of their own hesitations about Basic Income. As we have shown, a scheme that retains and recalculates means-tested benefits could largely avoid losses for low-income households and could reduce poverty. What would be really helpful would be to see further research from the OECD on a wider variety of types of Basic Income scheme, including schemes that retain and recalculate means-tested benefits.

We might add that, as we have also shown, it is perfectly feasible to keep Income Tax rate rises to 3 percentage points.

It is a pity that the new OECD document repeats uncritically its previous flawed research project on Citizen’s Basic Income, and that no further research on alternative schemes has been carried out.

In relation to the point about automatic stabilisers: It is of course true that means-tested benefits function as automatic stabilisers during economic downturns, and that Citizen’s Basic Incomes do not. Unfortunately, the OECD has made a common mistake. It would never be means-tested benefits or Citizen’s Basic Incomes on their own that would influence other economic factors: it would be the tax and benefits system as a whole that would do so. Any feasible Citizen’s Basic Income scheme would retain and recalculate means-tested benefits, meaning that they would still be available as an economic stabiliser. And for a Citizen’s Basic Income funded by changes to the existing tax and benefits system, the loss or reduction of the Income Tax Personal Allowance, and increased Income Tax rates, would mean that the Income Tax part of the system would act as more of a stabiliser. The overall stabilising effect of a system containing a Citizen’s Basic Income would therefore be much the same as the current system.

 

 

 

 

 

 

 

Footnotes

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