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Is ELIE a Wasteful Minimum Income Scheme?
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ELIE can be interpreted as a minimum income scheme, financed by lump-sum taxes. It may induce social waste as individuals with a low taste for working may opt for voluntary unemployment. We simulate the magnitude of this social waste with micro-data for Belgium and compare ELIE with a first best scheme and a second-best scheme (based on a linear income tax), implementing the same minimum income. As expected, the social waste induced by ELIE is intermediate between the social waste induced by the first- and second-best schemes. Assumptions about the preferences of the voluntarily unemployed play a crucial role.
Title: Is ELIE a Wasteful Minimum Income Scheme?
Description:
ELIE can be interpreted as a minimum income scheme, financed by lump-sum taxes.
It may induce social waste as individuals with a low taste for working may opt for voluntary unemployment.
We simulate the magnitude of this social waste with micro-data for Belgium and compare ELIE with a first best scheme and a second-best scheme (based on a linear income tax), implementing the same minimum income.
As expected, the social waste induced by ELIE is intermediate between the social waste induced by the first- and second-best schemes.
Assumptions about the preferences of the voluntarily unemployed play a crucial role.
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