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The elasticity of marginal utility of consumption: estimates for 20 OECD countries

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  • David J. Evans

Abstract

In social project appraisal, the policy profile of both distributional welfare weights and the social discount rate has risen considerably in recent years. This fact has important implications for the allocation of funds to social projects and policies in countries, and in unions of countries such as the EU. A key component in the formulae for both welfare weights and the social discount rate is the elasticity of marginal utility of consumption, e. A critical review of existing evidence on e suggests that the UK Treasury's preferred value of unity is too low. New evidence presented in this paper, based on the structure of personal income tax rates, suggests that, on average, for developed countries e is close to 1.4. This particular approach to the estimation of e has previously been under-utilised by researchers.

Suggested Citation

  • David J. Evans, 2005. "The elasticity of marginal utility of consumption: estimates for 20 OECD countries," Fiscal Studies, Institute for Fiscal Studies, vol. 26(2), pages 197-224, June.
  • Handle: RePEc:ifs:fistud:v:26:y:2005:i:2:p:197-224
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    More about this item

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

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