THE ECONOMICS OF UNIVERSAL BASIC INCOME
Authors: CSŐSZ Csongor 
Published: February 2025

This paper delves into the economic implications and feasibility of Universal Basic Income (UBI),
concentrating on the considerable tax burden necessary to fund a UBI system on a national scale. With UBI
increasingly seen as a potential solution to modern economic challenges, such as income inequality, poverty,
and automation-driven job displacement, this analysis underscores the significant fiscal demands of
implementing UBI. Through a comprehensive literature review of global UBI trials and an analysis of
economic models and simulations, the paper explores UBI’s impact on labor markets, poverty alleviation,
and income redistribution. Notable UBI experiments in Finland, Kenya, and Stockton have demonstrated
UBI’s capacity to enhance well-being and provide financial security. However, these trials also reveal
critical concerns about labor market participation and, more pressingly, the heavy fiscal burden a UBI
system would impose. The fiscal models reviewed in this study indicate that UBI, while promising in
enhancing social welfare, would require substantial tax increases to support it. The results emphasize that
funding UBI would place a considerable strain on public resources, demanding either heightened income or
consumption taxes or innovative but untested funding sources, such as taxes on carbon emissions or
automation. Each of these potential funding mechanisms has profound implications for economic equity,
efficiency, and social acceptance, and their viability is highly dependent on a nation’s specific economic
context and fiscal policy landscape. Furthermore, the study assesses UBI’s potential long-term effects on
labor markets, finding that while UBI might support labor market flexibility by reducing economic insecurity,
the level of the payment and tax structure could significantly affect employment incentives. This complex
interplay of UBI payments and tax policies, which often disproportionately impact certain socioeconomic
groups, underlines the need for careful fiscal planning. If structured effectively, UBI could serve as a buffer
against the economic disruptions caused by automation, providing displaced workers with the resources to
retrain or pursue new career paths in a shifting job market. However, the increased tax burden raises
questions about long-term viability, as higher taxes could reduce disposable incomes, deter workforce
participation, and, paradoxically, counter the economic dynamism UBI aims to foster. In conclusion, while
Universal Basic Income holds transformative potential for reducing poverty and supporting individuals in
the face of technological change, its implementation would require an unprecedented commitment of public
funds. This paper argues that UBI’s long-term sustainability depends on the development of funding
mechanisms that can balance equity with economic efficiency, without placing undue strain on public
resources or individual taxpayers. The substantial tax burden associated with UBI implementation must be
carefully managed to ensure that the societal benefits outweigh the financial costs, calling for further
research into tax structures that align with economic and social goals.