GCC governments share their oil wealth with their citizen population through two key channels which are economically distortive and socially inequitable: low domestic energy prices and excess employment of citizens in the public sector. Both are highly distortionary in general and particularly pronounced in Kuwait. Low domestic energy prices disproportionately benefit wealthy consumers (who tend to consume more), incentivize general over-consumption, distort investment decisions, and lead to declining energy efficiency. Guaranteed employment of citizens in the public sector distorts labour markets by drawing nationals out of private employment while undermining the efficiency of public administration and often excluding young and female labour market participants.
These distortions and conflicts are increasingly well understood in academic and policy literature. The debate is still short on practical solutions to deal with these issues, however. One policy that is both economically and arguably politically superior to the status quo would be the introduction of a universal basic income (UBI) for citizens that would gradually replace energy subsidies and excess public sector employment. Based on field research and policy-maker interviews in Kuwait, the present project will a) spell out different implementation options for a UBI scheme in the Kuwaiti case, and b) estimate the likely impact of different UBI schemes on key measures of economic sustainability and diversification.
Steffen is Associate Professor in Comparative Politics in the Department of Government.