Nova workboard

a blog from young economists at Nova SBE


Universal Basic Income: A Finnish Social and Employment Experiment

In 2017, the Finnish Ministry of Social Affairs and Health is to mandate a pilot project aiming to assess the usefulness of universal basic income (UBI) as a means of radically overhauling the social security system all the while promoting employment and cutting government expenditures (http://stm.fi/artikkeli/-/asset_publisher/sosiaali-ja-terveysministerio-pyytaa-lausuntoja-osittaisen-perustulokokeilun-toteuttamisesta?_101_INSTANCE_yr7QpNmlJmSj_languageId=en_US). But how could an unconditional, tax-free, and non-means-tested grant of €560.-/month to every citizen possibly be financed; let alone be profitable for a country?

It can so in an astoundingly easy fashion, say Swiss Institut Zukunft [Future Institute] researchers, Müller; Renninger; and Straub (http://zukunft.ch/potentialanalyse-grundeinkommen.pdf). Through the contentment and motivation drawn out of the financial treat the authors expect the workforce to reach higher levels of labour productivity, leading to increased economic output and; ultimately; higher government tax income. This effect is amplified by the demand-side effect of increased consumer spending. The authors farther believe the diminishment of financial insecurity to lower the public cost of stress-related psychic and physical ailments whilst, simultaneously, incentivising entrepreneurship; the latter of which is theorised to grow stronger over time. Furthermore, when compared to conventional social benefits, UBI is less prone to benefit fraud, thus circumventing the misallocation of state funds (https://www.thersa.org/discover/publications-and-articles/reports/basic-income).

More tautologically than vindicatorily, various sources (www.economist.com/news/leaders/21699907-proponents-basic-income-underestimate-how-disruptive-it-would-be-basically-flawed, https://www.theguardian.com/world/2016/jun/02/state-handouts-for-all-europe-set-to-pilot-universal-basic-incomes, and many else) stress that UBI is in itself an indispensable concept in light of the speeding automation of work and the underemployment rooting therein.It is widely believed that humans will not be able to make a living from their jobs in conceivable future. The financial safety net spun by UBI, however, would enable them to temporarily leave the workforce to undergo (re-) trainings and qualify themselves for intellectual work that cannot be done by machines, thus forestalling the incomparably higher social expenses of mass underemployment.

So far resembling a utopian vision come true, UBI still has its downsides when it comes to being implemented in policy. One – seemingly simple! – barrier to be broken down in establishing UBI is the design of specific modalities for disbursement. Is UBI to be paid out using existing income tax mechanisms? But if so, what about non-income-tax payers, or those citizens not formally taking part in the economy? In what rota will disbursements be made, and how can sufficient liquidity be ensured at these times? There is also some difficulty in creating and maintaining an encompassing cadaster of recipients and monitoring whether disbursements are actually received by all those entitled. Ultimately, UBI is suspected to miss out on so-called psychological and behavioural feasibility: in societies that value work as a basis of legitimacy of wealth it will be hard to justify UBI to the broad public, and pressure will weigh on those leaving the workforce for living off the others’ pockets (psychological feasibility); and the policy runs the risk of undermining itself through driving people out of the workforce, thus drying up the source of funds used to finance UBI (behavioural feasibility).

Amongst the Finnish, the expectation prevails that UBI will heave up employment by incentivising current recipients of social benefits to take on part-time jobs without having to fear the loss of financial support (http://www.forbes.com/forbes/welcome/?/sites/francescoppola/2016/08/27/&toURL=http://www.forbes.com/sites/francescoppola/2016/08/27/&refURL=&referrer=). In the light of recent research, whatsoever, the pilot is more of a surprise package with manifold possible outcomes.

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Brazilian Assistance Program for Low-Income Households: Bolsa Família

In Brazil, there is a government national program that aims to help low-income households and it is called Bolsa Família. According to the government, the purpose of this program is to transfer income to households living in poverty. They need health, nutrition and education assistance. The amount paid varies according to the number of household’s children and is due always to the woman of the family. Children must be less than eighteen years old and the amount varies with age also[1].

As a way of controlling who receives the aid, the government linked the payment to children’s school attendance as well as to vaccination records. For instance, if the children do not enroll in school, the household will not receive the money. In addition, it is necessary to keep personal data up to date in government registering system. Moreover, Bolsa Família groups a lot of poverty assistance national programs, that used to provide resources such as LP gas, food and school supplies. In Bolsa Família, all these aids and incentives were unified[2].

Several studies have shown that Bolsa Família program had been benefical for Brazilian population. Researchers have found that school attendance and the number of children approved in school increased and school abandonment was reduced instead[3].

Besides that, researches recently showed that violence reduction in State of São Paulo could be related to Bolsa Família. The authors point is that this program reduces income inequality and promotes increased low-income children attendance in schools. But critics disagree, because they argue that there are many other variables that interfere in violence[4].

Even though some studies have demonstrated benefits from Bolsa Família, there is a national discussion about the effective impact of this program. Have this program reduced income inequality in Brazil? Ricardo Paes de Barros, who idealized Bolsa Família, highlights the combination of this social program with others in Brazil. Income inequality fall occurred because formal job increased in poorest social layer, as a result of educational programs such as government financing of university tuition[5].

Another critical point is: who should receive this aid? Ricardo Paes de Barros says that government still have to improve in this area. Indeed, households just have to inform their income and there is no double check by the government. This is the main reason why part of Brazilians complains about Bolsa Família. The governemnt do not have a formal validation on income data, which facilitates corruption and income transferring for non-qualifying households. Correcting that is not a difficult task since government have enough data about it. Nowadays, this program is used as a political promotion by politicians. Almost all candidates stand up for this program as if Bolsa Família were the unique way to solve all the country’s problem of inequality.

[1] Bolsa Família is managed by a state-owned bank called Caixa Econômica. All operational guideline about this program was obtained in Caixa Econômica’s website: http://www.caixa.gov.br/programas-sociais/bolsa-familia/Paginas/default.aspx
[2] Source: http://www.mfdr.org/sourcebook/6-1brazil-bolsafamilia.pdf
[3] Source: http://cepea.esalq.usp.br/pdf/Cepea_ImpactoBolsaFamilia_Premio.pdf
[4] Source: http://oglobo.globo.com/brasil/bolsa-familia-reduz-violencia-aponta-estudo-da-puc-rio-5229981
[5] Source: http://exame.abril.com.br/revista-exame/edicoes/1114/noticias/bolsa-familia-sozinho-nao-resolve-problema-dos-mais-pobres

Gabriela Rodrigues

 


Are policy makers targeting the right people?

Sometimes policies are made to affect just a part of the society or to affect everyone, but in different ways. The target of one policy can be: families with children, poor people, households with a single person, etc.  It is easy to identify some examples of this situation like subsidized meals in schools for students; sickness benefits (sick population) and minimum guaranteed income (poor people).

After identifying the society’s target of a policy, policy makers should try to find an effective way to implement it. A common way of identifying targets is sorting the whole population by his/her income (taxes paid depending on income level) or by the household’s income (Public transportation subsidies). Sometimes the per capita income of a household is used to measure how rich or poor an individual is.  This measure has some drawbacks: First we are considering just the income of a family which determines the standards of living only partially. Considering two people with the same income, one of them owing his/her house and the other one needing to rent a place to live  (assume that is the only difference between them). The per capita income is the same but it is reasonable to consider that the house owner is “richer” than the other. Another problem with the per capita income and all the other monetary variables is related to tax-evasion and black market economies, leading the information that governments possess about people not to reflect necessarily their true conditions. Considering housing and other goods that people own (e.g., cars) or bank accounts data can be a way to achieve a more precise indicator about how rich is one person/household.

Second, per capita income can be too simplistic, even for a monetary income indicator. Consider  two households: a single person earning 500 Euros per month and two adults earning 1000 Euros per month – the per capita income is the same but the standards of living of the household seem to be higher because they have some costs that they are able to split up without being worse-off. For example: two people do not need more that one washing machine, bathroom or kitchen. There are some ways to solve this problem, the so called equivalent scales. These scales are made to compare households with different compositions. Some scales consider just the number of household members; others distinguish between adults and children or between adults and elders.

Policy makers can make mistakes in their policies when they try to target a group of people. For instance, in Public Transportation, there are some new rules to access student’s transportation discount. The objective of these rules is protecting poor families from the recent fare increases aimed at increasing revenue. The way that the Transportation companies set the “discount line” was with the per capita income of each household. As it was shown before, it is not the best way to identify poor people. In my opinion, ignoring the difference in people who live inside Lisbon (the travel pass costs 35 euros per month) and a person living in the outskirts (some passes cost more than 100 euros) is a huge limitation of this policy. The absence of mechanisms that distinguish students living outside parents’ place (hometown outside the area of Lisbon) and people who doesn’t have additional housing expenses is another way of having situations which are not particularly.

Guilherme Rodrigues