Universal Basic Income: the future of social welfare?

Abstract

The primary objective is to explore the relationship between support for Universal Basic Income (latterly referred to as UBI), labor participation, and poverty reduction in the Netherlands across various financial policies. The research also seeks to examine the behavioral responses of Dutch citizens to UBI policies, considering potential benefits beyond mere financial aspects such as education, health, and volunteerism. Ultimately, the study aims to offer policy recommendations regarding UBI based on its findings.

To address these objectives, the study analyzes the impact of UBI on recipients' disposable income. Support for UBI and its influence on labor participation are investigated using conjoint analysis, which involves varying attributes such as the value of UBI per adult, UBI per child, changes in the taxation system, and modifications in allowances. Additionally, the study employs a traditional survey to gauge respondents' intentions regarding the use of time and money under two proposed UBI policies: mid-UBI and high-UBI. Furthermore, the effect of UBI on poverty is assessed by examining marginal taxation rate tables from prior research, testing five different UBI policies to determine their impact on household incomes and changes in marginal tax rates.

The findings of this study reveal mixed effects on both labor participation and support for UBI, with an average of a slight overall increase. However, there is variability in the results, with both positive and negative values present within the confidence intervals. Notably, single parents and individuals receiving welfare payments demonstrate increased labor participation across their entire confidence intervals, despite lacking support for UBI. This discrepancy can be attributed to the fact that single adult households and single parents tend to fare poorly under UBI, facing heightened poverty risks. Conversely, UBI appears to be beneficial in boosting disposable income for multi-adult households, positioning them as the primary beneficiaries of this policy.

To ensure the success of UBI, a shift in policy is imperative, moving away from incentivizing individual living— a trend that has been increasingly prominent in the Netherlands. As an initial step, UBI can be introduced modestly with a taxable monthly amount of 210 euros per month per adult, supplemented by 300 euros per month per child, and bolstered by the provision of rent allowances and free childcare. This approach aims to augment the disposable income of households earning up to 60,000 euros in gross income, without adversely affecting higher-income earners. Notably, this policy adjustment also serves to reduce marginal taxation rates from levels sometimes exceeding 100\% to a more manageable 69\%.

To progress towards higher UBI values per adult, further research is warranted into inefficient tax deductions, potential increases in income tax, considerations around land value and property tax, and the reallocation of governmental employees. Based on the findings of these investigations, UBI could be incrementally increased to 630 euros per month per adult, at which point the rent allowance may be phased out.

At the threshold of 630 euros per month, significant enhancements in quality of life are expected to ripple across the population. These improvements encompass a reduction in stress levels, augmented accessibility to healthcare services, the empowerment to opt for healthier dietary options, and an enhanced ability to save among low and middle-income earners in the Netherlands. Building on these gains, the trajectory of UBI can be extended towards a higher benchmark of 1200 euros per month per adult. This upward progression aims to unlock additional benefits, including a more optimal allocation of jobs within the Dutch populace and further mitigation of marginal taxation rates towards levels akin to standard income tax rates.