Economics · May / June 2019 · Paper 21 · Question 1

Universal basic income (UBI) UBI is a scheme where a government provides everyone with a payment, regardless of their circumstances. Such a scheme can help a number of groups including the sick and the old. In 2016, the Indian government was looking at a UBI as an alternative to its existing system of state benefits. A politician in Costa Rica proposed a UBI of $337.5. Finland started a two-year experiment with a version of UBI in 2017. A guaranteed minimum income might help some of the poor who currently do not receive state benefits and may reduce inequality. In a number of countries, income and wealth inequality is increasing. For instance, in Russia 16% of the population live below the official poverty line and 10% of the population own 87% of the country’s wealth. State benefits are relatively low in Russia and the country has one income tax rate of 13%. One cause of the rise in the gap between the rich and the poor in Russia has been the effect on prices and profits arising from the privatisation of a number of state monopolies. Differences in annual average incomes (annual GDP per head) between countries can affect life expectancy as shown in Table 1.1. Table 1.1 Annual GDP per head and life expectancy in selected countries in 2016 Country Annual GDP per head Life expectancy (US$) (years) Costa Rica 16 200 78.8 Finland 42 000 80.8 India 7 400 68.6 Mali 2 300 55.7 Monaco 76 000 89.5 Russia 26 200 70.4 In Finland, a country with an average monthly income per head of $3500, the trial UBI is $600 per month. This does not cover everyone’s needs in a country with high prices, high tax rates and periods of very cold weather. In India, the average monthly income per head is almost the same as Finland’s UBI. A UBI could help the unemployed including the temporary unemployed. Governments welcome a reduction in unemployment. This is because it increases output and enables governments to reduce spending on state benefits for the unemployed. Governments could then increase spending on other areas including education and healthcare.

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