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Relative Income, Redistribution and Well-being

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  • FitzRoy, Felix

    ()
    (University of St. Andrews)

  • Nolan, Michael A.

    ()
    (University of Hull)

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    Abstract

    In a model with heterogeneous workers and both intensive and extensive margins of employment, we consider two systems of redistribution: a universal basic income, and a categorical unemployment benefit. Well-being depends on own-consumption relative to average employed workers’ consumption, and concern for relativity is a parameter that affects model outcomes. While labour supply incurs positive marginal disutility, we allow negative welfare effects of unemployment. We also compare Rawlsian and utilitarian welfare in general equilibrium under the polar opposite transfer systems, with varying concern for relativity. Basic income Pareto dominates categorical benefits with moderate concern for relativity in both cases.

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    Bibliographic Info

    Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5241.

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    Length: 32 pages
    Date of creation: Oct 2010
    Date of revision:
    Handle: RePEc:iza:izadps:dp5241

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    Related research

    Keywords: relative income; redistribution; basic income; unemployment benefits; happiness; well-being;

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