Inequality Aversion And The Optimal Composition Of Government Expenditure
AbstractThis paper examines the choice of government expenditure on public goods and transfer payments, in the form of a pension, in an overlapping generations model. Government expenditure is tax-financed on a pay-asyou- go basis. A utilitarian judge chooses expenditures to maximize a social welfare function. The nonlinear solution is found to involve the ratio of a welfare-weighted average income, which depends on the inequality aversion of the judge, to arithmetic mean income. An approximation for this ratio is found which produces explicit solutions for the optimal composition. The result is used to obtain an indication of âimplicitâ inequality aversion for a range of countries.
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Bibliographic InfoArticle provided by Cambridge University Press in its journal Macroeconomic Dynamics.
Volume (Year): 14 (2010)
Issue (Month): S2 (November)
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Other versions of this item:
- John Creedy & Shuyun May Li & Solmaz Moslehi, 2009. "Inequality Aversion and the Optimal Composition of Government Expenditure," Department of Economics - Working Papers Series 1086, The University of Melbourne.
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
- H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
- H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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