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Basic income: simulation experiments with Finnish data

Basic income: simulation experiments with Finnish data. Pertti Honkanen Euromod Workshop – Lisbon Oct. 2 &3, 2013. Basis social transfers in Finland, monthly figures , and proposed basic income levels in 2013 (adjusted with CPI to 2013). Earlier simulations from Finland.

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Basic income: simulation experiments with Finnish data

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  1. Basic income: simulation experiments withFinnish data Pertti Honkanen Euromod Workshop – Lisbon Oct. 2 &3, 2013

  2. Basis social transfers in Finland, monthly figures,and proposed basic income levels in 2013 (adjusted with CPI to 2013)

  3. Earlier simulations from Finland • Haataja, Anita: Verotuki, pohjavähennys vai perustulo? Vaihtoehdot empiirisessä tarkastelussa. Teoksessa Innovatiivinen sosiaalipolitiikka. Toim. Heikki Niemelä ym. Sosiaali- ja terveysturvan katsauksia 25. Helsinki: Kansaneläkelaitos 1998 • Sallila, Seppo: Erään perustulomallin arviointia. Teoksessa Köyhyys ja hyvinvointivaltion muutos. Toim. Matti Heikkilä & Jouko Karjalainen. Helsinki: Gaudeamus 2000 • Honkanen, Pertti: Perustulo simulaatioharjoituksena. Teoksessa Honkanen, Pertti & Soininvaara, Osmo & Ylikahri, Ville: Perustulo. Kohti toimivaa perusturvaa. Helsinki: Vihreä sivistysliitto 2007

  4. Some features of basic income models • Often a simple assumption:basic income replaces all social transfers • An alternative proposed in Finland: • Adjustment with the existing system • Some earlier simulations excluded pensioners for technical and principal reasons

  5. The Finnish pension system is to a certain degree compatible with basic income • An equal minimum pension for all pensioners, regardless of the family status: guarantee pension since 2011 • The minimum pension is (practically) not taxed, if it is the sole source of income • A regular income without means-testing • labour and capital incomes do not diminish the old-age pensions • Capital incomes do not affect the invalidity pensions (and labour incomes only after certain limits)

  6. New simulation of basic income • Data for 2010 • An experimentwihtboth an unconditional, explicitbasicincome and with a negativeincometaxsystem • Basic income is alsocalculated for pensioners, butit is greaterthan for others and it is called ”basicpension”

  7. Technical features of the simulations • SISU-model, data for 2010 • about 23 000 individuals, 9 400 households • Allsub-modelsarerun, except the realestatetax • Comparisionsare made between the differentsimulated data: baseline vs. BI vs. NIT • Financing with a flatratetaxsothat the system is ”cost-neutral” (with the accuracy of € 100 million, 0.1 % tolerance for taxrate)

  8. Unconditionalbasicincome vs. negativeincometax • Definitions: B = mininumincome (orguaranteedincome) t = flattaxrate Y = labour income D = disposableincome • Basic income: D = Y + B – tY • Negative incometax:D = Y – (–B + tY) = Y + B – tY

  9. Common features of alternativesimulations • Guaranteedincome (basicincome) € 600 /month for allresidents with ageover 18 years • Basic pension € 850 /month • Universal flatratetax for labour and capital income • No big changes in universal and means-testedtransfers: • childbenefits, housingbenefits, social assistance • Budgetequilibriumsoughtbyadjusting the flattaxrate

  10. Basic income • Taxable social transfers are paid according to the current legislation but the basic income is substracted from them • if the transfersaresmallerthan the basicincome, theyarenotpaid • The basicincome and the basicpensionare a part of the taxableincome, but the basicallowance in incometaxation is equal

  11. Negative incometax • Adjustment with existingtransfers as in the BImodel • Taxschedule: • Iftaxableincomes = 0 thentax = – (basicincome) or – (basicpension) • Negative tax is paidonly for residentswiht the age of 18 yearsormore

  12. Comparision of simulatedtransferflows

  13. Distributionaleffects

  14. Distributionaleffects 2

  15. Socio-economicgroups Notes. The classificationrefers to households. Householdsareclassifiedaccording to the reference person, who is normally the person with the highestincome in the household. Long-termunemployed: at least 6 monthsunemployedduring the year.

  16. Socio-economicgroups: relativechanges in disposableincome Notes: the classificationrefers to households. Householdsareclassifiedaccording to the reference person, who is normally the person with the highestincome in the household. Long-termunemployed: at least 6 monthsunemployedduring the year.

  17. Transferflowsbetweenhouseholds

  18. Relativetransfer and incomeflows

  19. Reasons for differences • In the BImodel the basicincome is a part of the taxableincome, whichleads to diminishinghousingbenefits • In the NITmodeltaxableincomediminishes, whichleads to risinghousingbenefits • Because the transfersaregreater in the NITmodel, the flattaxrate is alsogreater and the distributionaleffectsarestronger

  20. Alternativeparameters

  21. Marginaleffectivetaxrate Note: the marginaleffectivetaxratehasbeencalculatedonly for individualshaving wageincome, not for peoplepotentiallyworking as wageearners

  22. Possibilities of variation • Progressive taxinstead of flatratetax • A moredetailedsystem of taxation(e.g. separation of municipal and centralgovernmenttaxation) • Reforming the housingbenefit

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