IDEAS home Printed from https://ideas.repec.org/a/bla/econom/v74y2007i296p599-626.html
   My bibliography  Save this article

Is it Fair to 'Make Work Pay'?

Author

Listed:
  • ROLAND IWAN LUTTENS
  • ERWIN OOGHE

Abstract

We present a new fair allocation, coined a 'Pareto-efficient and Shared Resources Equivalent' allocation, which compensates for different productive skills, but not for different tastes for working. We illustrate the optimal second-best allocation in a discrete Stiglitz economy. The question of whether we should have regressive or progressive taxes for low earners crucially depends on whether the low-skilled have a strictly positive skill or zero skill. Our simulation results suggest that 'making work pay' policies can be optimal, according to our fairness criterion, but only in the unreasonable case in which all the unemployed are never willing to work. Copyright (c) The London School of Economics and Political Science 2007.

Suggested Citation

  • Roland Iwan Luttens & Erwin Ooghe, 2007. "Is it Fair to 'Make Work Pay'?," Economica, London School of Economics and Political Science, vol. 74(296), pages 599-626, November.
  • Handle: RePEc:bla:econom:v:74:y:2007:i:296:p:599-626
    as

    Download full text from publisher

    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0335.2006.00566.x
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Marc Fleurbaey & François Maniquet, 2006. "Fair Income Tax," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 55-83.
    2. Stiglitz, Joseph E., 1987. "Pareto efficient and optimal taxation and the new new welfare economics," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 15, pages 991-1042 Elsevier.
    3. Robin Boadway & Maurice Marchand & Pierre Pestieau & María del Mar Racionero, 2002. "Optimal Redistribution with Heterogeneous Preferences for Leisure," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 4(4), pages 475-498, October.
    4. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
    5. Tungodden, Bertil, 2000. "Egalitarianism: Is Leximin the Only Option?," Economics and Philosophy, Cambridge University Press, vol. 16(02), pages 229-245, October.
    6. Roemer, John E. & Aaberge, Rolf & Colombino, Ugo & Fritzell, Johan & Jenkins, Stephen P. & Lefranc, Arnaud & Marx, Ive & Page, Marianne & Pommer, Evert & Ruiz-Castillo, Javier, 2003. "To what extent do fiscal regimes equalize opportunities for income acquisition among citizens?," Journal of Public Economics, Elsevier, vol. 87(3-4), pages 539-565, March.
    7. Blundell, Richard & Macurdy, Thomas, 1999. "Labor supply: A review of alternative approaches," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 27, pages 1559-1695 Elsevier.
    8. Fleurbaey, Marc & Maniquet, Francois, 1996. "Fair allocation with unequal production skills: The No Envy approach to compensation," Mathematical Social Sciences, Elsevier, vol. 32(1), pages 71-93, August.
    9. Tuomala, Matti, 1990. "Optimal Income Tax and Redistribution," OUP Catalogue, Oxford University Press, number 9780198286059.
    10. Boadway, Robin & Keen, Michael, 2000. "Redistribution," Handbook of Income Distribution,in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 12, pages 677-789 Elsevier.
    11. Elisha A. Pazner & David Schmeidler, 1978. "Egalitarian Equivalent Allocations: A New Concept of Economic Equity," The Quarterly Journal of Economics, Oxford University Press, vol. 92(4), pages 671-687.
    12. Heckman, James J, 1993. "What Has Been Learned about Labor Supply in the Past Twenty Years?," American Economic Review, American Economic Association, vol. 83(2), pages 116-121, May.
    13. Roemer, John E. & Aaberge, Rolf & Colombino, Ugo & Fritzell, Johan & Jenkins, Stephen P. & Lefranc, Arnaud & Marx, Ive & Page, Marianne & Pommer, Evert & Ruiz-Castillo, Javier, 2003. "To what extent do fiscal regimes equalize opportunities for income acquisition among citizens?," Journal of Public Economics, Elsevier, vol. 87(3-4), pages 539-565, March.
    14. Emmanuel Saez, 2001. "Using Elasticities to Derive Optimal Income Tax Rates," Review of Economic Studies, Oxford University Press, vol. 68(1), pages 205-229.
    15. Luigi, Bernardi, 2002. "Tax systems and tax reforms in Europe: Italy," MPRA Paper 18045, University Library of Munich, Germany.
    16. Emmanuel Saez, 2002. "Optimal Income Transfer Programs: Intensive versus Extensive Labor Supply Responses," The Quarterly Journal of Economics, Oxford University Press, vol. 117(3), pages 1039-1073.
    17. M. Fleurbaey & F. Maniquet, 2000. "Fair Social Orderings With Unequal Production Skills," THEMA Working Papers 2000-17, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    18. Maniquet, Francois, 1998. "An equal right solution to the compensation-responsibility dilemma," Mathematical Social Sciences, Elsevier, vol. 35(2), pages 185-202, March.
    19. Diamond, Peter A, 1998. "Optimal Income Taxation: An Example with a U-Shaped Pattern of Optimal Marginal Tax Rates," American Economic Review, American Economic Association, vol. 88(1), pages 83-95, March.
    20. Diamond, P., 1980. "Income taxation with fixed hours of work," Journal of Public Economics, Elsevier, vol. 13(1), pages 101-110, February.
    21. Ebert, Udo, 1992. "A reexamination of the optimal nonlinear income tax," Journal of Public Economics, Elsevier, vol. 49(1), pages 47-73, October.
    22. Stiglitz, Joseph E., 1982. "Self-selection and Pareto efficient taxation," Journal of Public Economics, Elsevier, vol. 17(2), pages 213-240, March.
    23. Schokkaert, Erik & Van de gaer, Dirk & Vandenbroucke, Frank & Luttens, Roland Iwan, 2004. "Responsibility sensitive egalitarianism and optimal linear income taxation," Mathematical Social Sciences, Elsevier, vol. 48(2), pages 151-182, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Erwin Ooghe & Andreas Peichl, 2015. "Fair and Efficient Taxation under Partial Control," Economic Journal, Royal Economic Society, vol. 125(589), pages 2024-2051, December.
    2. Roland Hodler, 2009. "Redistribution and Inequality in a Heterogeneous Society," Economica, London School of Economics and Political Science, vol. 76(304), pages 704-718, October.
    3. André Decoster & Peter Haan, 2015. "Empirical welfare analysis with preference heterogeneity," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(2), pages 224-251, April.
    4. Giacomo Valletta, 2009. "A fair solution to the compensation problem," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 32(3), pages 455-478, March.
    5. X. Ramos & D. Van De Gaer, 2012. "Empirical Approaches to Inequality of Opportunity: Principles, Measures, and Evidence," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 12/792, Ghent University, Faculty of Economics and Business Administration.
    6. Giacomo Valletta, 2014. "Health, fairness and taxation," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 43(1), pages 101-140, June.
    7. Ooghe, Erwin & Peichl, Andreas, 2010. "Fair and Efficient Taxation under Partial Control: Theory and Evidence," IZA Discussion Papers 5388, Institute for the Study of Labor (IZA).
    8. Jacquet, Laurence & Van de Gaer, Dirk, 2011. "A comparison of optimal tax policies when compensation or responsibility matter," Journal of Public Economics, Elsevier, vol. 95(11), pages 1248-1262.
    9. Akay, Alpaslan & Bargain, Olivier & Jara, Xavier, 2017. "'Fair' Welfare Comparisons with Heterogeneous Tastes: Subjective versus Revealed Preferences," IZA Discussion Papers 10908, Institute for the Study of Labor (IZA).

    More about this item

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:econom:v:74:y:2007:i:296:p:599-626. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum). General contact details of provider: http://edirc.repec.org/data/lsepsuk.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.