RESEARCH

Research Fields

Macroeconomics, econometrics, labor economics

Research Interests

Growth, inequality, poverty, consumption, artificial intelligence

Job Market Paper

Abstract:

 

Universal Basic Income (UBI) is a program in which all residents of a country receive a regular transfer of money from the government. This pure and unconditional basic income has no means test, is distributed automatically to all residents and thus, is easy to administer. In this paper, I use general equilibrium model of heterogeneous agents to evaluate the impact of the UBI system, on aggregate levels and distributions of wealth, consumption, labor, and welfare. I contrast this with a targeted transfers system where people need to meet certain eligibility criteria (usually, income) to qualify for transfers. I find that in the UBI system with $1,000 monthly payments, the level of aggregate capital falls by 16% and the inequality of wealth increases  no matter how the UBI system is financed: through taxes or through foreign aid. Guaranteed payments induce people to save less because of less precautionary needs. As precautionary savings motive is stronger for the asset poor, people in the lowest wealth quintiles reduce their savings more, which increases the inequality of wealth. Even though the welfare of the least skilled and the asset poor increases significantly because of unconditional transfers, the tax-financed UBI system requires a consumption tax rate to be equal to 43% that slightly reduces the welfare of the wealthier. Even though consumption tax rate is unrealistically high, the effective consumption tax rate (consumption tax net of transfers) decreases on average and aggregate welfare increases by 15.7% as measured by consumption equivalent variation. A hybrid model with both targeted transfers and partial UBI (monthly payments of $500) with low, 5% capital income tax rate (to encourage savings) is more efficient as it provides significant, almost 8% gain in welfare with only 22% consumption tax rate and without compromising output or welfare of the asset rich. 

Work in Progress

The Potential of a Universal Basic Income Program to Solve the Economic Hardship Associated with Automation

I use general equilibrium models with heterogeneous agents who face idiosyncratic productivity shocks to study the impact of a UBI policy on aggregate output and welfare with the revolution of robots. I study the stationary equilibrium as well as transition dynamics. I use CES production function that, in addition to traditional capital, includes robot capital with the ability to substitute for labor. When the productivity of robots increases, they substitute for labor and thus, in the short run, wages fall and interest rates rise. In such a setting, a UBI is successful to alleviate the poverty associated with automation and increase well-being of the asset poor households in the transition period. However, in the long run, a UBI program reduces output. 

Basic Income Programs During Crisis

I use a Krusell-Smith type model with aggregate and idiosyncratic productivity and unemployment shocks to evaluate the impact of the U.S. CARES package type Basic Income payments in crisis periods. I find that a basic income can effectively reduce the volatility of aggregate capital and consumption and increase the well-being of households in crisis periods. However, it limits the accumulation of capital when the economy experiences sequential positive productivity shocks. 

Universal Basic Income and Entrepreneurship

Micro-level evidence suggests that a UBI system can encourage small business activities and self-employment because it relaxes borrowing constraints. I study this in the macroeconomic framework.