Active citizen's income, unconditional income and participation under imperfect competition: a welfare analysis

Various types of basic income schemes are considered to compensate the allocative inefficiencies induced by unemployment benefits. A dynamic general equilibrium model of a unionised economy is developed in which participation to the formal labour market is endogenous and the budget of the State has to balance. It is shown that basic income schemes reduce the equilibrium unemployment rate. Assuming that job-search is costly to monitor, the normative analysis suggests that only the active population should be eligible to the basic income. Introducing such an 'active citizen's income' can be a Pareto-improving reform.