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Tax-Benefit Systems in Europe and the US: Between Equity and Efficiency

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  • BARGAIN Olivier
  • DOLLS Mathias
  • NEUMANN Dirk
  • PEICHL Andreas
  • SIEGLOCH Sebastian

Abstract

Whether observed di¤erences in redistributive policies across countries are the result of di¤erences in social preferences or e¢ ciency constraints is an important question that paves the debate about the optimality of welfare regimes. To shed new light on this question, we estimate labor supply elasticities on microdata and adopt an inverted optimal tax approach to characterize the redistributive preferences embodied in the welfare systems of 17 EU countries and the US. Implicit social welfare functions are broadly compatible with the ?ction of an optimizing Paretian social planner. Some exceptions due to generous demogrant transfers are consistent with the ignorance of behavioral responses by some European governments and are partly corrected by recent policy developments. Heterogeneity in leisure-consumption preferences somewhat a¤ect the international comparison in degrees of revealed inequality aversion, but di¤erences in social preferences are signi?cant only between broad groups of countries.

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Bibliographic Info

Paper provided by CEPS/INSTEAD in its series CEPS/INSTEAD Working Paper Series with number 2011-11.

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Length: 48 pages
Date of creation: Jan 2011
Date of revision:
Handle: RePEc:irs:cepswp:2011-11

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Keywords: social preferences; redistribution; optimal income taxation; labor supply;

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Cited by:
  1. Gordon, Roger H. & Cullen, Julie Berry, 2012. "Income redistribution in a Federal system of governments," Journal of Public Economics, Elsevier, vol. 96(11), pages 1100-1109.
  2. Felix Bierbrauer & Pierre C. Boyer, 2014. "Efficiency, Welfare, and Political Competition," CESifo Working Paper Series 4814, CESifo Group Munich.
  3. Holly Sutherland & Francesco Figari, 2013. "EUROMOD: the European Union tax-benefit microsimulation model," International Journal of Microsimulation, Interational Microsimulation Association, vol. 1(6), pages 4-26.
  4. Normann Lorenz & Dominik Sachs, 2012. "Optimal Participation Taxes and Efficient Transfer Phase-Out," Working Paper Series of the Department of Economics, University of Konstanz 2012-37, Department of Economics, University of Konstanz.
  5. Benjamin B. Lockwood & Matthew Weinzierl, 2014. "Positive and Normative Judgments Implicit in U.S. Tax Policy, and the Costs of Unequal Growth and Recessions," Harvard Business School Working Papers 14-119, Harvard Business School.
  6. Bönke, Timm & Eichfelder, Sebastian & Utz, Stephen, 2012. "Uneven treatment of family life? Horizontal equity in the U.S. tax and transfer system," Discussion Papers 2012/18, Free University Berlin, School of Business & Economics.

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