Income guarantees and the equity-efficiency tradeoff

This paper examines the tradeoffs inherent in guaranteed income proposals. Its perspective is international, using the Luxembourg Income Study and asking whether economic efficiency suffers when governments make greater efforts to protect the poor. Using two different measures of productivity growth, we find no big tradeoff between equity and efficiency. That is, during those times and in those countries where greater efforts were made to protect the incomes of the poor, productivity growth does not seem to be affected very much. This gives some hope that efficiency concerns are not a fatal objection to guaranteed income plans.