Basic Income vs. Wage Subsidy : Labour Supply, Fiscal Effects, and Differences in Recipients

The economic literature often argues that basic income schemes and low wage subsidies to employees are just special cases of a negative income tax. In this debate, it is ignored that these concepts target different population subgroups. This paper investigates the different target groups and the particular implications on government budget and labour supply. A basic income scheme doubles the number of net benefit receiving persons whereas a more targeted wage subsidy increases this number by only 10%. These differences explain why wage subsidy programs can be financed and evoke politive labour supply effects, while basic income schemes either lead to high costs or to negative employment effects