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Basic Income Simulation in Finland: Findings and Comparison

Explore the simulation experiments of basic income models in Finland, including data from 2013 and earlier studies. Understand the impact on social transfers, pension systems, and income levels. Compare unconditional basic income and negative income tax systems. Analyze distributional effects and socio-economic groups.

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Basic Income Simulation in Finland: Findings and Comparison

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  1. Basic income: simulation experiments withFinnish data Pertti Honkanen Euromod Workshop – Lisbon Oct. 2 &3, 2013

  2. Basis social transfers in Finland, monthly figures,and proposed basic income levels in 2013 (adjusted with CPI to 2013)

  3. Earlier simulations from Finland • Haataja, Anita: Verotuki, pohjavähennys vai perustulo? Vaihtoehdot empiirisessä tarkastelussa. Teoksessa Innovatiivinen sosiaalipolitiikka. Toim. Heikki Niemelä ym. Sosiaali- ja terveysturvan katsauksia 25. Helsinki: Kansaneläkelaitos 1998 • Sallila, Seppo: Erään perustulomallin arviointia. Teoksessa Köyhyys ja hyvinvointivaltion muutos. Toim. Matti Heikkilä & Jouko Karjalainen. Helsinki: Gaudeamus 2000 • Honkanen, Pertti: Perustulo simulaatioharjoituksena. Teoksessa Honkanen, Pertti & Soininvaara, Osmo & Ylikahri, Ville: Perustulo. Kohti toimivaa perusturvaa. Helsinki: Vihreä sivistysliitto 2007

  4. Some features of basic income models • Often a simple assumption:basic income replaces all social transfers • An alternative proposed in Finland: • Adjustment with the existing system • Some earlier simulations excluded pensioners for technical and principal reasons

  5. The Finnish pension system is to a certain degree compatible with basic income • An equal minimum pension for all pensioners, regardless of the family status: guarantee pension since 2011 • The minimum pension is (practically) not taxed, if it is the sole source of income • A regular income without means-testing • labour and capital incomes do not diminish the old-age pensions • Capital incomes do not affect the invalidity pensions (and labour incomes only after certain limits)

  6. New simulation of basic income • Data for 2010 • An experimentwihtboth an unconditional, explicitbasicincome and with a negativeincometaxsystem • Basic income is alsocalculated for pensioners, butit is greaterthan for others and it is called ”basicpension”

  7. Technical features of the simulations • SISU-model, data for 2010 • about 23 000 individuals, 9 400 households • Allsub-modelsarerun, except the realestatetax • Comparisionsare made between the differentsimulated data: baseline vs. BI vs. NIT • Financing with a flatratetaxsothat the system is ”cost-neutral” (with the accuracy of € 100 million, 0.1 % tolerance for taxrate)

  8. Unconditionalbasicincome vs. negativeincometax • Definitions: B = mininumincome (orguaranteedincome) t = flattaxrate Y = labour income D = disposableincome • Basic income: D = Y + B – tY • Negative incometax:D = Y – (–B + tY) = Y + B – tY

  9. Common features of alternativesimulations • Guaranteedincome (basicincome) € 600 /month for allresidents with ageover 18 years • Basic pension € 850 /month • Universal flatratetax for labour and capital income • No big changes in universal and means-testedtransfers: • childbenefits, housingbenefits, social assistance • Budgetequilibriumsoughtbyadjusting the flattaxrate

  10. Basic income • Taxable social transfers are paid according to the current legislation but the basic income is substracted from them • if the transfersaresmallerthan the basicincome, theyarenotpaid • The basicincome and the basicpensionare a part of the taxableincome, but the basicallowance in incometaxation is equal

  11. Negative incometax • Adjustment with existingtransfers as in the BImodel • Taxschedule: • Iftaxableincomes = 0 thentax = – (basicincome) or – (basicpension) • Negative tax is paidonly for residentswiht the age of 18 yearsormore

  12. Comparision of simulatedtransferflows

  13. Distributionaleffects

  14. Distributionaleffects 2

  15. Socio-economicgroups Notes. The classificationrefers to households. Householdsareclassifiedaccording to the reference person, who is normally the person with the highestincome in the household. Long-termunemployed: at least 6 monthsunemployedduring the year.

  16. Socio-economicgroups: relativechanges in disposableincome Notes: the classificationrefers to households. Householdsareclassifiedaccording to the reference person, who is normally the person with the highestincome in the household. Long-termunemployed: at least 6 monthsunemployedduring the year.

  17. Transferflowsbetweenhouseholds

  18. Relativetransfer and incomeflows

  19. Reasons for differences • In the BImodel the basicincome is a part of the taxableincome, whichleads to diminishinghousingbenefits • In the NITmodeltaxableincomediminishes, whichleads to risinghousingbenefits • Because the transfersaregreater in the NITmodel, the flattaxrate is alsogreater and the distributionaleffectsarestronger

  20. Alternativeparameters

  21. Marginaleffectivetaxrate Note: the marginaleffectivetaxratehasbeencalculatedonly for individualshaving wageincome, not for peoplepotentiallyworking as wageearners

  22. Possibilities of variation • Progressive taxinstead of flatratetax • A moredetailedsystem of taxation(e.g. separation of municipal and centralgovernmenttaxation) • Reforming the housingbenefit

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