Income transfer schemes have gained significant traction over the past few months, with major political parties announcing variants of income transfer programmes as part of their election manifestos.
These announcements have triggered debates about both the feasibility and effects of income transfers. In a recently published study, Maitreesh Ghatak of the London School of Economics and Francois Maniquet of the University catholique de Louvain added a new perspective to this debate.
They concluded that an unconditional universal basic income (UBI) for all citizens can be an effective tool for poverty alleviation in poor countries, given certain conditions.
The authors define UBI as having three features. First, it is a cash transfer, as opposed to in-kind transfer such as food or fuel. Second, it is universal, and not targeted towards any specific group. Third, it involves a change in the tax system to be a budget-balanced or revenue-neutral proposal.
Building their own economic models and examining global evidence, the authors posit that UBI has important impacts on savings, skill formation, risk taking and entrepreneurship.
However, they also suggest that there needs to be a flexibility in policymaking to ensure the UBI is tailored for the local context. For instance, a UBI is only effective when there is ready access to markets. The authors found that people living in remote rural communities would prefer in-kind transfers.
The authors highlighted that in poorer countries, where there are institutional failings in the form of corruption, direct cash transfers can be particularly effective. Further, they suggested that a UBI could work best when it does not replace existing policies, but is provided in addition to in-kind transfers. In these cases, beneficiaries, rather than the policymakers, would be the ones making a choice between receiving cash or in-kind transfers.
Also read: Universal Basic Income: Some Theoretical Aspects