Basic Income - With or Without Bismarckian Social Insurance?

We model a welfare state with only basic income, a welfare state with basic income and Bismarckian social insurance, a pure market outcome and an informal sector. Using these models we study under what circumstances a system with basic income is economically feasible and supported by a majority. We conclude that there are reasonable circumstances under which a the combination of basic income and Bismarckian social insurance is superior to a system with only basic income, in terms of political sustainability and economic feasibility. We also show that in many cases, Bismarckian social insurance increases the vertical income redistribution because of a negative correlation between risk and income. Paper prepared for the BIEN 10th Congress, 19-20 September 2004, Barcelona. Work In Progress Contact author for most recent version!