NIT Picking: The macroeconomic effects of a negative income tax

A simulation of the economy, suggesting the optimal Negative Income Tax consists of a 22% tax rate and a benefit amount equal to 11% of per-capita GDP. NIT outperforms a flat tax reform by a considerable welfare margin.

2016

Academic Paper

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One econometric model predicts a NIT implies a 13% drop in the savings rate and a subsequent 22% reduction in the capital stock. A NIT with marginal tax rate of 22% and a transfer of 11% of per-capita GDP implies a welfare gain equivalent to a 2.09% increase in annual consumption. One econometric model predicts a NIT implies a 13% drop in the savings rate and a subsequent 22% reduction in the capital stock. With a basic income, high-productivity workers increase participation while low-productivity workers reduce participation, increasing the Gini coefficient for labor earnings. The optimal design of basic income (tax rates, transfer amounts) significantly depends on labor supply elasticity, where econometric models and real-world observations are in conflict.

authors

Martin Lopez-Daneri

reports

Basic Income