A study by the RWI Leibniz Institute for Economic Research has identified the conditions that would be necessary in the event of an unconditional basic income for Germany. These include an increase in state transfer payments and higher taxes. The consideration of a basic income based on household type and place of residence could also lead to a reduction in working hours, as discussed in the study.

Essen, September 18th, 2024: An unconditional basic income (UBI) could lead to the elimination of various social benefits and thus greatly reduce or simplify the social system. However, significant tax increases would also be necessary. According to the study, recipients of the UBI would reduce their working hours.

Reform scenarios show that the UBI would be paid out to citizens, and not all benefits included in the social budget could be cancelled due to existing legal entitlements.

In the reform scenarios, income tax rates are simulated and analysed in terms of their distribution effects. A possible scenario of the expected behaviour of employees on the labour market has also been taken into account and leads to the conclusion that financing a UBI of approx. 1000 euros per adult on the basis of income tax increases would not be financially viable. Apart from this, a basic income of this amount would not be sufficient to secure the livelihood of all household constellations.

Another simulation considers a basic income based on household type and place of residence. The basic income corresponds to the dependency on household composition and the rent level at the place of residence. This simulation is considered to be financially viable. Working hours would be reduced by around 30 per cent, but this depends on the design of the necessary income tax reform.

As a result of such a redistribution, single parents would have more income than in couple households and families. Additional burdens on the upper income groups could be minimised if administrative tasks in the social system were significantly reduced, according to the report.

The distributional effects, financing requirements and implementation options of the UBI were estimated by the researchers using an RWI income tax microsimulation model (EMSIM) based on a representative household survey, the German Socio-Economic Panel (SOEP) and data from the RWI-GEO-RED property dataset.

„The introduction of an unconditional basic income at a living wage would significantly reduce the incentive to work. Due to the decline in working hours, it cannot be financed even through large tax increases. A basic income that depends on the composition of the household and the level of rent could theoretically be financed. However, it would be very expensive and could only be financed through large tax increases,“ says study author Robin Jessen, head of the RWI research group “Microstructure of Tax and Transfer Systems”. „The incentive to work would also fall significantly here – especially in the upper income bracket. As a result, the labour shortage would be significantly exacerbated. Even now, many jobs cannot be filled. Germany would fall further behind in international competition and lose prosperity.“

Originalpublication:

https://www.degruyter.com/document/doi/10.1515/pwp-2023-0036/html