Empirical public finance has been a most active field of research in the past two decades, and a great deal has been learned from the application of econometric and experimental methods. In this chapter, I consider what can be deduced from this literature, and from the underlying theoretical framework, about the impact of income taxation on incentives. This is relevant because the flat tax associated with the basic income scheme is likely to be higher than the present marginal rates faced by many taxpayers, although the rise in tax rate is not, of course, the only change brought about by the Basic Income/Flat Tax (BI/FT) package. The replacement by the basic income of social insurance and social assistance benefits may also be expected to affect incentives (see, for example, Atkinson 1987, and Atkinson and Micklewright 1991). Reasons of space mean, however, that I have to limit the discussion to the effects of changes in income tax rates.
In focusing on work incentives, I am not suggesting that this is the only aspect of family behaviour potentially affected by the introduction of the BI/Fr programme. The reform may, for instance, influence savings decisions, particularly the extent to which people make provision for old age. The existence of a basic income might be expected to reduce private provision but the replacement of social insurance benefits could have the reverse effect. At present people may believe that contributions to social insurance provide a guarantee of a retirement pension, whereas the level of a future basic income is less certain and more exposed to political risk. If the basic income promise is less credible than that made by social insurance, then people may save more in other forms. Moreover, to the extent that the BI/FT scheme reduces dependence on means-tested assistance in old age, it avoids the 'savings trap' which people face under