Question

If the government imposes a universal basic income program without increasing taxes other than the potential revenue increase through indirect taxation of consumption(GST etc.) what would be the impact on the economy in general? Please respond considering the market for labour, market for loanable funds and the overall change in the GDP.

Answer 1

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The economy may have a massive shift with the implementation of UBI.

With the advent of technology joblessness has also been a matter of grave concern. The UBI will enable the jobless to continue looking for meaningful work as they have some security in the form of UBI. Also in the domestic houselhold women will fell more empowered especially in rural areas as they possess some financial backing. In the labour market it will provide workers more bargaining power than before because people can suastain themselves and have something to fall back to incase their appeals don't work.

The UBI is also expected to massively increase the middle class group according to experts like Thomas Piketty. UBI would help in balancing the inequality. Thus the capitlal and credit market will be experiencing a higher demand. This will definitely have an impact on the loanable funds market and the government intervention and monetary policy would be reuired to stabilise this surge.

Successful limplementation of UBI will definitely help in food security, stress, housing and other amenities which will definitel promote growth of GDP. But the magnitude of change will depend on factors like motivation to work, cost of implementation and philosophical arguments like birthright. All these factors need to be addressed in a very tactful manner to drive a meaningful change going forward.