The Imperfections of Conditional Programs and the Case for Universal Basic Income

Luis Guimarães and Diogo Lourenço

MPRA Paper from University Library of Munich, Germany

Abstract: What is the impact of replacing conditional welfare programs with a Universal Basic Income (UBI) that costs the same? We answer this question using a general-equilibrium model with incomplete markets that accounts for three imperfections of conditional programs: incomplete take-up, illegitimate transfers, and administrative costs. We find that these imperfections, particularly incomplete take-up, substantially affect welfare. We also find that replacing the conditional programs with a UBI would increase capital stock, employment, and output, and lower inequality. Yet, the welfare effect of a UBI is not clear-cut. Aggregate welfare would fall in our benchmark, but a moderately larger UBI would be preferable to an equal expansion of conditional programs, especially for the least educated.

Keywords: Universal Basic Income; Welfare System; Take-up; Illegitimate Transfers; Administrative Costs; Labor Market Flows. (search for similar items in EconPapers)
JEL-codes: D52 E21 H24 J21 J64 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
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https://mpra.ub.uni-muenchen.de/123364/8/MPRA_paper_123364.pdf revised version (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:119964

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