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The elasticity of marginal utility of consumption: estimates for 20 OECD countries

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  • David J. Evans
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    Abstract

    In social project appraisal, the policy profile of both distributional welfare weights and the social discount rate has risen considerably in recent years. This fact has important implications for the allocation of funds to social projects and policies in countries, and in unions of countries such as the EU. A key component in the formulae for both welfare weights and the social discount rate is the elasticity of marginal utility of consumption, e. A critical review of existing evidence on e suggests that the UK Treasury's preferred value of unity is too low. New evidence presented in this paper, based on the structure of personal income tax rates, suggests that, on average, for developed countries e is close to 1.4. This particular approach to the estimation of e has previously been under-utilised by researchers.

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    Article provided by Institute for Fiscal Studies in its journal Fiscal Studies.

    Volume (Year): 26 (2005)
    Issue (Month): 2 (June)
    Pages: 197-224

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    Handle: RePEc:ifs:fistud:v:26:y:2005:i:2:p:197-224

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    Cited by:
    1. Patrizio Lecca & Peter McGregor & J. Kim Swales & Karen Turner, 2013. "The added value from a general equilibrium analyses of increased efficiency in household energy use," Working Papers 1308, University of Strathclyde Business School, Department of Economics.
    2. MARKIANIDOU, Paresa & WEEREN, Arie, 2011. "Linear and non linear growth models using mixed modeling: An application on European import volumes," Working Papers 2011011, University of Antwerp, Faculty of Applied Economics.
    3. Richard S.J. Tol, 2009. "International inequity aversion and the social cost of carbon," Working Papers FNU-178, Research unit Sustainability and Global Change, Hamburg University, revised Nov 2009.
    4. Wolfgang Buchholz & Jan Schumacher, 2008. "Discounting the Long-Distant Future: A Simple Explanation for the Weitzman-Gollier-Puzzle," CESifo Working Paper Series 2357, CESifo Group Munich.
    5. David J. EVANS, 2006. "Social discount rates for the European Union," Departmental Working Papers 2006-20, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    6. Chris Hope, 2013. "Critical issues for the calculation of the social cost of CO 2: why the estimates from PAGE09 are higher than those from PAGE2002," Climatic Change, Springer, vol. 117(3), pages 531-543, April.
    7. Benarroch, Michael & Weder, Rolf, 2006. "Intra-industry trade in intermediate products, pollution and internationally increasing returns," Journal of Environmental Economics and Management, Elsevier, vol. 52(3), pages 675-689, November.
    8. Alfred Endres & Regina Bertram & Bianca Rundshagen, 2007. "Environmental Liability Law and Induced Technical Change – The Role of Discounting," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 36(3), pages 341-366, March.
    9. Erhun KULA, 2006. "Regional welfare weights," Departmental Working Papers 2006-32, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    10. Lopez, Humberto, 2008. "The social discount rate : estimates for nine Latin American countries," Policy Research Working Paper Series 4639, The World Bank.
    11. Martin Debus & Jochen Michaelis, 2006. "Ausbildung, Erwerbsphase, Renteneintritt - demografischer Wandel und optimale Zeitallokation im Lebenszyklus," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 226(6), pages 611-628, November.
    12. Dritan Osmani, 2013. "Valuing Equally the Environmental Goods in Rich and Poor Countries in a Post-Kyoto World," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 7(2), pages 073-099, July.
    13. Aristei, David & Perugini, Cristiano, 2010. "Preferences for redistribution and inequality in well-being across Europe," Journal of Policy Modeling, Elsevier, vol. 32(2), pages 176-195, March.
    14. Halicioglu, Ferda & Karatas, Cevat, 2011. "A social discount rate for Turkey," MPRA Paper 32925, University Library of Munich, Germany.
    15. Tol, Richard S. J., 2008. "Measuring International Inequity Aversion," Papers WP254, Economic and Social Research Institute (ESRI).
    16. Allan, Grant & Lecca, Patrizio & McGregor, Peter & Swales, Kim, 2014. "The economic and environmental impact of a carbon tax for Scotland: A computable general equilibrium analysis," Ecological Economics, Elsevier, vol. 100(C), pages 40-50.
    17. Halicioglu, Ferda & Karatas, Cevat, 2010. "Estimation of economic discounting rate for practical project appraisal: the case of Turkey," MPRA Paper 29577, University Library of Munich, Germany.
    18. Garau, Giorgio & Lecca, Patrizio & Mandras, Giovanni, 2013. "The impact of population ageing on energy use: Evidence from Italy," Economic Modelling, Elsevier, vol. 35(C), pages 970-980.
    19. John Creedy, 2006. "Evaluating Policy: Welfare Weights And Value Judgements," Department of Economics - Working Papers Series 971, The University of Melbourne.
    20. Mareike Schad & Jürgen John, 2012. "Towards a social discount rate for the economic evaluation of health technologies in Germany: an exploratory analysis," The European Journal of Health Economics, Springer, vol. 13(2), pages 127-144, April.

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