Kangas, Olli. Basic Income Experiment in Finland. Presentation 3.5.2016.

1. Experimenting Basic
Income (BI) in Finland
3. May 2016 Paris,
Maison des Sciences ėconomiques
Olli Kangas (olli.kangas@kela.fi)
Professor, Research Director
Kela, Social Insurance Institution of Finland

2. The preliminary report delivered
thge 30 March 2016
• Which models are the most suitable for the
experiment
• What is the level of the monthly payment
• How to combine BI with income-related benefits
and other basic benefits
• Tax treatment of different models
• What are the strengths and weaknesses of
different models in the context of the EU and the
Finnish Constitution
• Recommendation: what is / what are the
model/models to be further explored2

3. The working group evaluates the models,
research setting and samples to be
experimented
• The task for the working group is to make a plan
for the experiment
• After the first report (due to 30 March 2016) the
Government decides which models should be
further developed
• Later in the year 2016 the Government will decide
which model/s will be experimented, what is the
target population and what is the experimental
setting
• That is under preparation
3

4. Models explored and developed
• Full basic income (BI)
• The level of BI is high enough to replace almost all insurance-based
benefits
• Must be rather a high monthly sum, e.g.1 000€-1 500€. Realistic?
• Partial basic income
• Replaces all ’basic’ benefits but almost all insurance-based benefits left
intact
• Minimum level should not be lower than the present day minimum level
of basic benefits (€ 550 - € 600 a month)
• Plus income-related benefits and housing & child allowance
• Negative income tax
• Income transfers via taxation system
• Other models
• Perhaps low BI plus ’participation’ income4

5. What next?
• Writing the law on the experiment (before summer 2016)
• Hearing of interest organisations
• Parliamentary discussion
− Constitutional committee
• Specifying the model (before summer 2016)
• Levels (net) single +2 children sngl parent+2 chld
• Basic unenmpl. €589 €724 €724
• Social assistance €486 €1069 €1190
• What is the right level of benefit. Not too costly but eliminates the need for
social assistance?
• How to take into consideration specific needs of single parents?
5

6. Experimental settings
(an example of an optimal research setting, nothing selected yet)
6
• To get scientifically reliable results and evidence for
policy making the experimental setting must
• Include a sufficient number of households
• rather than individuals
• Be nationally representative
• A nation level randomization
• local experiments in order to capture networking,
institutional and interaction effects and various
externalities
• e.g. local municipalities with 10%, 30% random sampling.
• To increase the sample size:
• Kela benefits will be used as a source of extra funding (sample 7,000)

7. Experimental setting
Model BI € Tax rate
A0 590 PRESENT
A1 590 40%
A2 590 45%
B1 690 45%
B2 690 50%
7
Sample size
Significant effect

8. Effective marginal tax rates in the present
system and in the €750 BI world (Flat rate tax = 52%;
single mother, 2 children live in Helsinki, rent €750)
8
• Effective marginal tax rates
remain high also in the BI
model
• The main problems are
linked to housing
allowances and ’adjusted’
unemployment
compensation
• BI as such is not a solution
• Taxes in the BI model
’behave’ more logically
• BI may solve bureaucratic
traps and waiting periods
when moving from a status
to another one

9. Effective marginal tax rates in the present
system and in the €550 BI world (single person,
lives outside capital area, rent €570, present taxation).
9
• If the BI is financed through
the present tax system,
effective, marginal tax rates
are much lower than in the
present social policy
system.
• The main problems are now
linked to social assistance
and housing allowance
• Both problems are smaller in
the BI model
• In 0 –income group there still is
a need for social assistance
• Problem: the model is not
cost-neutral
• Extra resources are needed
Social
assistance Housing
allowance
Tax
Work
income

10. BI may solve other problems and create a
number of new ones…
The model Flat rate
tax
Gini Poverty
(60%)
Winners
(000)
Losers
(000)
Present
system
-- 26.9 15.6 -- --
BI 500€ 41.5 26.4 15.3 1,849 774
BI 550€ 43.5 26.0 14.8 1,807 816
BI 600€ 45.0 25.7 14.3 1,826 796
BI 650€ 46.5 25.4 13.9 1,832 791
BI 700€ 49.0 25.0 13.5 1,770 853
BI 750€ 50.5 24.6 13.1 1,786 836
BI 800€ 52.5 24.2 12.6 1,752 87110