, PLEASE USE THIS DOCUMENT AS A GUIDE ONLY
Part A
1. It is argued that the advancement of Artificial Intelligence (AI) will render some workers
redundant, leading to increased unemployment, poverty, and inequality. Some economists are
calling for the introduction of a Basic Income Grant (BIG) to mitigate these challenges. Compare,
with the aid of diagrams, the effects of Basic Income Grant (BIG) and Universal Basic Income
Grant (UBI) on poverty and inequality.
A Comparative Analysis of the Effects of a Basic Income Grant (BIG) and a Universal Basic
Income (UBI) on Poverty and Inequality
1. Introduction
The rapid advancement of Artificial Intelligence (AI) presents a profound challenge to traditional
labour markets. As automation displaces workers, economists and policymakers fear a surge in
structural unemployment, which could exacerbate already high levels of poverty and inequality. One
proposed remedy is the introduction of a Basic Income Grant. However, the term encompasses two
distinct policy instruments: a targeted Basic Income Grant (BIG) and a Universal Basic Income
(UBI). While both involve direct cash transfers, their design—specifically the presence or absence of
targeting—leads to significantly different outcomes. This essay compares, using diagrams, the
effects of a targeted BIG and a universal UBI on poverty and inequality, drawing on core principles
from Public Economics 8th edition.
The central argument is that while both policies reduce poverty and inequality compared to a
laissez-faire baseline, a targeted BIG is theoretically superior for maximising poverty reduction and
redistributive impact per unit of fiscal cost. However, a UBI offers administrative simplicity and
avoids the work disincentives associated with the poverty trap, albeit at a much higher fiscal cost and
with weaker anti-poverty effects.
2. Conceptual Distinction and the Analytical Framework
It is first necessary to define the two policies precisely. A Universal Basic Income (UBI) is a cash
transfer paid unconditionally to every citizen or resident, irrespective of their income or wealth. A
Basic Income Grant (BIG) , in the context of this comparative analysis, is defined as a targeted or
means-tested transfer, provided only to individuals or households whose income falls below a
specified poverty line (Van der Berg & Siebrits, 2010, p. 23). The key differentiating feature is
therefore targeting.
To analyse their effects, we employ two models from the textbook: first, the analysis of targeting
mechanisms (Chapter 8, Section 8.3) to assess poverty and inequality impacts; and second, the
labour-leisure choice model (Chapter 9, Section 9.4) to assess work incentive effects.
Part A
1. It is argued that the advancement of Artificial Intelligence (AI) will render some workers
redundant, leading to increased unemployment, poverty, and inequality. Some economists are
calling for the introduction of a Basic Income Grant (BIG) to mitigate these challenges. Compare,
with the aid of diagrams, the effects of Basic Income Grant (BIG) and Universal Basic Income
Grant (UBI) on poverty and inequality.
A Comparative Analysis of the Effects of a Basic Income Grant (BIG) and a Universal Basic
Income (UBI) on Poverty and Inequality
1. Introduction
The rapid advancement of Artificial Intelligence (AI) presents a profound challenge to traditional
labour markets. As automation displaces workers, economists and policymakers fear a surge in
structural unemployment, which could exacerbate already high levels of poverty and inequality. One
proposed remedy is the introduction of a Basic Income Grant. However, the term encompasses two
distinct policy instruments: a targeted Basic Income Grant (BIG) and a Universal Basic Income
(UBI). While both involve direct cash transfers, their design—specifically the presence or absence of
targeting—leads to significantly different outcomes. This essay compares, using diagrams, the
effects of a targeted BIG and a universal UBI on poverty and inequality, drawing on core principles
from Public Economics 8th edition.
The central argument is that while both policies reduce poverty and inequality compared to a
laissez-faire baseline, a targeted BIG is theoretically superior for maximising poverty reduction and
redistributive impact per unit of fiscal cost. However, a UBI offers administrative simplicity and
avoids the work disincentives associated with the poverty trap, albeit at a much higher fiscal cost and
with weaker anti-poverty effects.
2. Conceptual Distinction and the Analytical Framework
It is first necessary to define the two policies precisely. A Universal Basic Income (UBI) is a cash
transfer paid unconditionally to every citizen or resident, irrespective of their income or wealth. A
Basic Income Grant (BIG) , in the context of this comparative analysis, is defined as a targeted or
means-tested transfer, provided only to individuals or households whose income falls below a
specified poverty line (Van der Berg & Siebrits, 2010, p. 23). The key differentiating feature is
therefore targeting.
To analyse their effects, we employ two models from the textbook: first, the analysis of targeting
mechanisms (Chapter 8, Section 8.3) to assess poverty and inequality impacts; and second, the
labour-leisure choice model (Chapter 9, Section 9.4) to assess work incentive effects.
