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The marginal utility of income and homogeneous demand systems

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  • Hjertstrand, Per

Abstract

It is important for policymakers and researchers to know how the marginal utility of a population changes with income. This effect is measured by the elasticity of marginal utility of income and is a key parameter in, for examples, cost–benefit analysis, optimal taxation, and measurement of inequality. This paper proposes and applies a demand systems approach to estimate the elasticity of marginal utility of income. Using the PSID survey data for representative samples of households in the United States, I estimate the elasticity of marginal utility of income over households to approximately 0.58.

Suggested Citation

  • Hjertstrand, Per, 2025. "The marginal utility of income and homogeneous demand systems," Journal of Economic Behavior & Organization, Elsevier, vol. 229(C).
    • Handle: RePEc:eee:jeborg:v:229:y:2025:i:c:s0167268124004670
    DOI: 10.1016/j.jebo.2024.106853
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