Targeted programs v the basic income guarantee: an examination of the efficiency costs of different forms of redistribution

A basic income guarantee is known to require a great deal of tax revenue per dollar of net transfer. Such revenue requirements can appear to be prohibitive, not only politically but also in terms of economic efficiency; and this impression can lead people to favor more targeted forms of redistribution in which there are eligibility requirements and means-testing and where the financing is entirely by non-recipients. A simple simulation is used in this article to show that, in the United States, a basic income guarantee is not necessarily a less efficient way of accomplishing redistributive goals and that it could well be more efficient. Two other important and related conclusions become apparent. First, a large proportion of the inefficiency is due to the behavioral response of the net donor population rather than to net recipient behavior. Second, the efficiency costs of these two types of redistributive programs are not proportional to their revenue requirements.