Universal Basic Income and the City

"We study the introduction of Universal Basic Income (UBI) with a particular focus on how it affects real estate and the urban environment. The main effect of UBI is a trade-off between i) decreased inequality, leading to higher welfare due to a redistribution towards poorer households with high marginal utility, and ii) a less efficient and productive economy, caused by distortional income taxes used to pay for UBI. In our calibration, a $5,000 UBI is welfare improving for the equal weighted welfare measure as i) is quantitatively more important than ii). The poorest half of households see large welfare gains, but the remaining half see smaller welfare losses. Prices, rents, and the ownership rate all fall, as households supply less labor in response to higher taxes. The wage rises, due to the decline in labor supply. The makeup of the city’s inner core versus outer suburbs also changes, although these changes depend on exactly how UBI is financed. The more progressive the financing scheme, the more likely high income households are to leave the city center, leading to urban blight."


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