Ville-Veikko Pulkka. From idea to experiment. Notes on the Finnish basic income experiment study. Presentation at The 6th International Conference Well-being in the Information Society (WIS). Tampere 17.9.2016.

1. From idea to experiment
Notes on the Finnish basic income experiment
study
The 6th International Conference Well-being in the Information Society
(WIS) 2016
Linna Building September 17 2016
Ville-Veikko Pulkka
researcher
The Finnish Social Insurance Institution Kela
ville-veikko.pulkka@kela.fi

2. The structure of the presentation
• Background for the experiment study
• The essential findings and recommendations of the
research group
• How to plan a successful experiment?
2

3. What is basic income?
• “an income unconditionally granted to all on an
individual basis, without means test or work
requirement” (BIEN)
• however, basic income cannot be discussed at a general
level
• level of basic income, taxation and replaceable benefits
determine the outcomes
• the framing effect on support (Kela surveys)
• political targets vary drastically
− in the 1980s an answer for technological unemployment, today
emphasis on labour supply
3

4. Background for the experiment study
• a reference was made to a basic income experiment in
the governmental programme of the centre-right wing
coalition government of Prime Minister Juha Sipilä (The
Centre Party of Finland) in May 2015
• in autumn 2015, after evaluation a consortium led by the
Finnish Social Insurance Institution Kela was appointed
to study the suitability of different basic income models
for the experiment
• a preliminary study was published on 30 March 2016
• deadline for the final report on 15 November 2016
• according to current plans, the basic income experiment
is expected to be launched in January 20174

5. The assignment handed down by the Prime
Minister’s Office
• the assignment outlined four different options to explore and
develop:
• full basic income
− the level of BI high enough to replace almost all other benefits, perhaps excluding
earnings-related benefits
• partial basic income
− could replace the most of the basic security benefits (e.g. basic social assistance,
basic unemployment benefit, labor market subsidy, sickness allowance,
rehabilitation allowance, minimum parental allowances, startup grants), but
earnings-related benefits left intact
• negative income tax
− income transfers via taxation system
• other possible models
5

6. The assignment handed down by the Prime
Minister’s Office
• the government’s main target: diminish disincentives in
social security = increase employment
• continuation of the activation policies: to increase employment
by emphasising labour supply
• currently a number of means-tested benefits are paid in
addition to each other
• joint effect: different work disincentives
− unemployment traps
− income traps
− bureaucracy traps
6

7. How to measure the traps?
• unemployment traps = economic disincentives to
participate in labour markets
• indicator: participation tax rate > 80% (how many percentages
your gross salary is diminished by taxes, lost benefits and
earnings-related service charges (e.g. day care charges) if you
start to work)
• income traps = economic disincentives to increase
workload
• indicator: effective marginal tax rate > 70% (how many
percentages your gross salary is diminished if you increase your
workload)
• bureaucracy traps = psychological disincentives
• due to the means-tested benefits delays, reporting, falling
through the social security net7

8. What was studied in the preliminary study?
• What is basic income?
• earlier basic income experiments abroad
• basic income discussion in Finland
• support for basic income
• microsimulations: costs, effects on poverty and income
distribution, work incentives (participation tax rate & effective
marginal tax rate)
• legal preconditions
• implications on municipalities
• implications on employment services
• scientifically reliable research setting
• research started autumn 2015, published on 30 March 2016
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9. Support for basic income in Finland (Airio, Laatu,
Kangas & Koskenvuo 2015)
BI as
such
BI
€500/m,
tax 40%
BI
€600/m,
tax 45%
BI
€700/m,
tax 50 %
BI
€800/m,
tax 55 %
Very good
idea
29.0 8.2 5.3 6.8 10.4
Good idea 40.3 26.5 29.1 24.6 18.6
Bad idea 18.5 29.5 33.3 35.2 31.2
Very bad idea 8.1 30.2 26.4 27.2 33.8
No opinion 4.1 5.6 5.9 6.2 6.0
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10. Different budget-neutral BI models, flat rate taxes
and effects on income distribution and poverty
(microsimulations by Honkanen & Simanainen)
Basic income,
euros/month
Flat tax
rate, %
Gini
Poverty-
rate, %
0 (current system) NA 26,51 13,03
450 41,5 25,94 12,29
500 43,5 25,50 11,98
550 45,0 25,15 11,74
600 46,5 24,79 11,39
650 48,5 24,33 11,10
700 50,0 23,96 10,91
750 52,0 23,49 10,47
800 53,5 23,11 10,21
10

11. The essential findings of the preliminary study
• full basic income too expensive (flat rate taxes 60%
€1000 BI & 79% €1500 BI) and politically difficult to test
• negative income tax experiment not reliable before an
access to real-time information of incomes
• budget-neutral partial BI does not automatically remove
the economic disincentives (housing allowances,
additional social assistance and earnings-related benefits
cannot be replaced)
• strengthening economic work incentives costs or means diluting
the current level of social security
• bureaucracy traps can be partly solved: less delays,
reporting and falling through the social security net
11

12. Participation tax rates of a person living alone (a
simple case)
Salary
change
Current
legislation
BI €550/month & tax
model
BI €750/month & tax
model
Flat rate tax Current,
progressive
Flat rate tax Current,
progressive
No means tested benefits, but eligible for housing allowance and social assistance
0 > €500 80.0 50.2 31.8 63.9 38.5
0 > €1000 65.1 63.6 47.0 74.0 50.3
0 > €2000 65.2 60.8 45.9 66.2 44.2
€1000 >
€2000
65.3 58.0 44.9 58.3 38.2
Adjusted basic unemployment allowance and eligible for housing allowance and
social assistance
0 > €500 36.9 50.2 47.5 63.9 38.5
0 > €1000 51.7 63.6 57.2 74.0 50.3
0 > €2000 66.3 60.8 51.1 66.2 44.2
€1000 >
€2000
80.9 58.0 44.9 58.3 38.2
12

13. Participation tax rates of a lone parent (a difficult
case)
Salary change
Current
legislation
BI €550/month & tax
model
BI €750/month & tax
model
Flat rate tax Current Flat rate tax Current
0 > €500 29.3 54.4 28.8 60.4 27.7
0 > €1000 42.0 64.7 43.7 72.8 36.6
0 > €2000 70.3 81.2 64.6 87.8 59.9
0 > €3000 78.4 82.7 71.2 87.3 65.8
€1000 > €2000 98.7 97.8 85.6 102.9 83.1
€2000 > €3000 94.6 85.6 84.5 86.4 77.8
13

14. The recommendations of the research group
• two-pronged and compulsory randomisation
• nationwide (representive sample, generalizable results)
• more intensive regional (for examining externalities)
• a weighted sample possible
• test and control groups
• power calculations: a sample size big enough to observe
statistically significant results
• studying the entire adult population (excl. pensioners) would be
reasonable, but due to the limited budget, we recommended to
focus on low-income earners
• and exclude people under 25 years old
14

15. The recommendations of the research group
• partial basic income (min. €550/mth) the most realistic
option
• corresponds to the monthly net level of many of the basic
security benefits provided by Kela
• would not replace earnings-related benefits, housing allowances
and additional social assistance
• in an ideal test situation: different levels of basic income and tax
rates
15

16. An ideal research setting
Model Basic income, EUR Tax rate
A0 560 current
A1 560 40
A2 560 45
B1 660 43
B2 660 48
16

17. Legal preconditions (Tuovinen & co.)
• The Constitution of Finland
• the principle of non-discrimination
− may limit the number of models
− may set conditions for the sampling
− obligatory or voluntary sample?
• the right to basic subsistence
− diluting the current level of social security probably not possible
− would strengthen the economic work incentives, but also increase poverty
and income hardship
• in the last resort it will be the Constitutional Committee that decides
• aim of assessing reforms required for societal improvements may
constitute an acceptable justification for deviating from the principle of
non-discrimination
• The EU law
• the exportability of basic income
• when a person will be eligible for basic income when moving to Finland
17

18. The basic income experiment bill (25 August 2016)
• €560 tax free partial basic income
• current progressive taxation
• persons between 25 and 58 years of age living in Finland
who in November 2016 receive basic unemployment
allowance or labour market subsidy
• nationwide randomisation, a sample of 2000, obligatory
• lasts two years
• sample size, randomisation and exclusive target group
are explained by time and budget constraints
• criticism: too small sample, too exclusive target group and an
unrealistic model (due to the budget deficit)
• given the governments targets: ”good enough”
• possible extension up to the government
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19. How to plan a successful basic income
experiment?
• discussing a basic income at a general level problematic
• need to define targets specifically
• political commitment crucial
• before (enough resources and clear targets/indicators)
• during (enough resources and patience)
• after the experiment (enough resources for good-quality
evaluation)
• awareness of a demanding process
• cooperation between politicians, civil servants, Tax
Administration, researchers and other relevant institutions must
be open and flowing
• a basic income experiment is not ”just an experiment”
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20. Basic income’s possible health implications
• an important indicator which should be followed during
and after the experiment(s)
• Dauphin negative income experiment 1974–1979
• everyone in the town was eligible for NIT
• health implications were not studied
• Evelyn Forget’s extensive study ”The Town With No Poverty”
based on registries (2011)
• considerable positive effects on health, and especially mental
health, during and even after the experiment
• should not be translated into Finnish context without
reservations
• however, emphasises the possible diverse effects of basic income
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