Income Guarantee Policy Design: Implications for Poverty, Income Distribution, and Tax Rates

Abstract

A guaranteed income could greatly reduce poverty, yet the impact and feasibility depend on several key policy design choices. We empirically compare guarantee designs financed by income taxation and estimate potential labor supply responses to transfer benefits as well as financing or targeting mechanisms. The analysis features a fundamental tax reform converting personal deductions and credits into an income guarantee along with higher marginal tax rates. Additional results consider policies with a flat surtax, benefit phaseout, or welfare reform. We use microsimulation analysis based on the Current Population Survey, and we adjust for underreported income.