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The Social Marginal Valuation of Income: Australian Estimates from Government Behaviour

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  • JOHN PIGGOTT

Abstract

Alternative public policies frequently incorporate distributional goals. The elasticity of the social marginal valuation of income, ε, can help to derive welfare weights for different individuals in different income groups. Estimates are presented of the elasticity of the social marginal valuation of income implied by the Australian personal income tax, in the period 1968–69 to 1975–76. Both equal absolute (EAS) and equal proportional sacrifice (EPS) models are used to infer the elasticity values. Using taxable income as a proxy for income, the consistent value of ε under EAS was found to range from 2.07 to 2.57; the EPS range was 1.76 to 2.40. A number of considerations suggested a best‐guess magnitude of about 2.2. Caution is urged in the interpretation and use of these results.

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  • John Piggott, 1982. "The Social Marginal Valuation of Income: Australian Estimates from Government Behaviour," The Economic Record, The Economic Society of Australia, vol. 58(1), pages 92-99, March.
    • Handle: RePEc:bla:ecorec:v:58:y:1982:i:1:p:92-99
    DOI: 10.1111/j.1475-4932.1982.tb00352.x
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    1. Harberger, Arnold C, 1978. "On the Use of Distributional Weights in Social Cost-Benefit Analysis," Journal of Political Economy, University of Chicago Press, vol. 86(2), pages 87-120, April.
    2. Yew-Kwang Ng, 1975. "Bentham or Bergson? Finite Sensibility, Utility Functions and Social Welfare Functions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 42(4), pages 545-569.
    3. Harberger, Arnold C, 1971. "Three Basic Postulates for Applied Welfare Economics: An Interpretive Essay," Journal of Economic Literature, American Economic Association, vol. 9(3), pages 785-797, September.
    4. Clark, Colin, 1973. "The Marginal Utility of Income," Oxford Economic Papers, Oxford University Press, vol. 25(2), pages 145-159, July.
    5. Koichi Mera, 1969. "Experimental Determination of Relative Marginal Utilities," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 83(3), pages 464-477.
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    Cited by:

    1. Yitzhaki, Shlomo & Slemrod, Joel, 1991. "Welfare Dominance: An Application to Commodity Taxation," American Economic Review, American Economic Association, vol. 81(3), pages 480-496, June.

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