On the Time Consistency of Universal Basic Income

Youngsoo Jang

MPRA Paper from University Library of Munich, Germany

Abstract: I study how government commitment shapes optimal Universal Basic Income (UBI) by characterizing the equilibria of a dynamic game between heterogeneous individuals and a benevolent government. I find that commitment, throughout the transition, influences how the government balances income redistribution through taxes and UBI with pecuniary externalities from changes in factor income composition. In a calibrated economy, commitment substantially improves welfare by implementing considerable UBI that incurs long-run welfare losses but drives front-loaded welfare gains through income redistribution facilitated by reduced precautionary savings. Without commitment, the government obtains smaller welfare improvements, overlooking the impacts of long-run UBI on the short-run economy.

Keywords: Universal Basic Income; Time Inconsistency; Taxes and Transfers; Heterogeneous Agents; Incomplete Markets (search for similar items in EconPapers)
JEL-codes: E61 H11 (search for similar items in EconPapers)
Date: 2023-04
New Economics Papers: this item is included in nep-dge and nep-pbe
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https://mpra.ub.uni-muenchen.de/117867/1/Time_Consistency_UBI_v8.pdf revised version (application/pdf)

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