With Andrew Yang’s presidential candidacy moving forward, people are discussing basic income again. One common meme about a Basic Income is that by removing the implicit high marginal tax rates that arise from the withdrawal of welfare benefits, disincentives for labor would be reduced and therefore a Basic Income would not reduce labor supply. In this blog post I provide both empirical and theoretical evidence why this conclusion is false.
In particular, I review the experimental literature, which suggests a Basic Income will result in approximately a 10% drop in labor supply. I also review standard economic theory regarding diminishing […]
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