On the Time Consistency of Universal Basic Income

How and to what extent does the optimality of Universal Basic Income (UBI) depend on itstime inconsistency? I address these questions in an incomplete-markets economy by characterizingand solving for the equilibria of a dynamic game between individuals and a benevolentgovernment according to its commitment. I find that commitment substantially improveswelfare by implementing considerable UBI that incurs long-run welfare losses but generatesfront-loaded welfare gains through two pro-poor changes—income redistribution and factorprice adjustments during the early transition. Lack of commitment results in much smallerwelfare improvements, ignoring the long-run UBI impacts on the short-run economy