Three essays on poverty alleviation programmes: Basic income, negative income tax and child benefit

Poverty alleviation, which has gained prominence along with socio-political economics, has been the focus of studies in the development economics literature. In this thesis, basic income, negative income tax, and child benefit policies that are among the prominent issues in poverty alleviation are examined using an extensive individual and household basis data set and microsimulation analysis. Chapter One reveals the background, objective and organization of the study. Chapter Two introduces the concept of poverty, describes key metrics related to income distribution and poverty, and outlines the social policies, social assistances and poverty in Turkey. Chapter Three examines the effectiveness of the basic income policy, which is presented as the first solution to the poverty problem. Basic income refers to the cash payment by the state to all citizens, regardless of the level of income of individuals and their working conditions. Microsimulation analysis is carried out by combining individual and household data in the Income and Living Conditions survey compiled by Turkstat in 2018 and published in 2020. 50% of the median income, also called the poverty line, is considered basic income per capita and is given to all households according to the equivalence scale. In order to ensure neutral budget, the final tax collected is equal to sum of the initial tax and the basic income payment, and taxation is carried out using two different taxation schemes, i.e., flat rate tax and progressive rate tax. The household-based scenario shows that the Atkinson index drops from 0.123 to 0.040, the Gini index falls from 0.381 to 0.202, and the Theil index decreases from 0.284 to 0.095 after basic income with flat tax financing scheme. On the other hand, the Atkinson index drops from 0.123 to 0.034, the Gini index decreases from 0.381 to 0.190, and the Theil index falls from 0.284 to 0.079 after basic income with progressive tax financing scheme. It shows that the basic income policy reduces income inequality, and the progressive tax funding scheme is more effective. In the final case, 62.01 % flat rate tax or 2.89 times the initial tax burden should be levied on households within the scope of the neutral budget. Since basic income is tax-free, it is also defined as the minimum guaranteed income. Poverty is eliminated due to the fact that all households' incomes are greater or equal than poverty line. Chapter Four reveals the effectiveness of the negative income tax policy, which is presented as the second solution to the poverty problem. Negative income tax refers to the policy based on the fact that individuals whose incomes are below a certain threshold receive a tax refund, while individuals whose incomes are above the specified threshold fund tax payments to finance tax refund. Microsimulation analysis is carried out by combining individual and household data in the Income and Living Conditions survey compiled by Turkstat in 2018 and published in 2020. The median income is equal to the breakeven income level, the households whose gross income is below the breakeven income level receive half of the difference between breakeven income level and the household gross income. In order to ensure neutral budget, the final tax collected is equal to sum of the initial tax and the negative income tax payment, and taxation is carried out using two different taxation schemes, i.e., flat rate tax and progressive rate tax. The household-based scenario shows that the Atkinson index from 0.123 to 0.055, the Gini index decreases from 0.381 to 0.240, and the Theil index from 0.284 to 0.133 after negative income tax with flat tax financing scheme. On the other hand, the Atkinson index decreases from 0.123 to 0.044, the Gini index decreases from 0.381 to 0.216, and the Theil index decreases from 0.284 to 0.104 after negative income tax with progressive tax financing scheme. It shows that the negative income tax policy reduces income inequality, and the progressive tax funding scheme is more effective. In the final case, %41.94 flat rate tax or 1.85 times the initial tax burden should be levied on households within the scope of the neutral budget. Negative income tax is also defined as the minimum guaranteed income, since even a household with no income will receive as many tax refunds as the poverty line. Poverty is eliminated due to the fact that all households' incomes are greater or equal than poverty line. Chapter Five shows the effectiveness of the child benefit policy, which is presented as the third solution to the poverty problem. Child benefit refers to cash payment provided to households with children whose income below the poverty line. Microsimulation analysis is carried out by combining individual and household data in the Income and Living Conditions survey compiled by Turkstat in 2018 and published in 2020. The households with children whose equivalent income is below the poverty line receive child benefit, which is equal to the difference between the poverty line multiplied by equivalence scale and household gross income. In order to ensure neutral budget, the final tax collected is equal to sum of the initial tax and the child benefit payment, and taxation is carried out using two different taxation schemes, i.e., flat rate tax and progressive rate tax. The household-based scenario shows that the Atkinson index from 0.122 to 0.093, the Gini index decreases from 0.379 to 0.326, and the Theil index from 0.282 to 0.193 after child benefit with flat tax financing scheme. On the other hand, the Atkinson index from 0.122 to 0.083, the Gini index decreases from 0.379 to 0.311, and the Theil index from 0.282 to 0.123 after child benefit with progressive tax financing scheme. It shows that the child benefit policy declines income inequality, and the progressive tax funding scheme is more effective. In the final case, %25.28 flat rate tax or 1.12 times the initial tax burden should be levied on households within the scope of the neutral budget. Since child benefit is provided only to households with children whose income is below the poverty line, households without children whose income is below the poverty line continue to remain poor. When child benefit is financed with a flat-rate tax, the headcount ratio decreases from 0.140 to 0.024, and the poverty gap falls from 0.040 to 0.006. On the other hand, when child benefit is financed with a progressive tax, the headcount ratio drops from 0.140 to 0.026, and the poverty gap decreases from 0.040 to 0.007. Unlike the basic income and negative income tax policies, the child benefit policy is not aimed at eliminating poverty, but at alleviating poverty. Chapter Six presents key findings and policy recommendations, outlines the limitations and directions for future research.