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Empirical welfare analysis with preference heterogeneity

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  • André Decoster

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  • Peter Haan

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Abstract

We apply recently proposed individual welfare measures in the context of preference heterogeneity, derived from structural labour supply models. Contrary to the standard practice of using reference preferences and wages, these measures preserve preference heterogeneity in the normative step of the analysis. They also make the ethical priors, implicit in any interpersonal comparison, more explicit. Information on preference heterogeneity is obtained from a structural discrete choice labour supply model for married women estimated on microdata from the Socio Economic Panel in Germany. We construct welfare orderings of households according to the different metrics, each embodying different ethical choices concerning the treatment of preference heterogeneity in the consumption-leisure space and provide empirical evidence about the sensitivity of the welfare orderings to different normative principles. We also discuss how sensitive the assessment of a tax reform is to the choice of different metrics. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • 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.
  • Handle: RePEc:kap:itaxpf:v:22:y:2015:i:2:p:224-251
    DOI: 10.1007/s10797-014-9304-5
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    Cited by:

    1. Creedy, John & Gemmell, Norman & Hérault, Nicolas & Mok, Penny, 2018. "Microsimulation Analysis of Optimal Income Tax Reforms. An Application to New Zealand," GLO Discussion Paper Series 213, Global Labor Organization (GLO).
    2. Matteo Picchio & Giacomo Valletta, 2018. "A welfare evaluation of the 1986 tax reform for married couples in the United States," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(3), pages 757-807, June.
    3. Nizamul Islam & Ugo Colombino, 2017. "The case for NIT+FT in Europe. An empirical optimal taxation exercise," CHILD Working Papers Series 54 JEL Classification: H2, Centre for Household, Income, Labour and Demographic Economics (CHILD) - CCA.
    4. Anand, Paul & Roope, Laurence & Peichl, Andreas, 2016. "Wellbeing Evidence for the Assessment of Progress," IZA Discussion Papers 9840, Institute for the Study of Labor (IZA).
    5. BARGAIN Olivier & DOORLEY Karina, 2016. "The Effect of Social Benefits on Youth Employment: Combining RD and a Behavioral Model," LISER Working Paper Series 2016-12, LISER.
    6. Aaberge, Rolf & Colombino, Ugo, 2018. "Structural Labour Supply Models and Microsimulation," IZA Discussion Papers 11562, Institute for the Study of Labor (IZA).
    7. 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).
    8. repec:kap:jecinq:v:15:y:2017:i:4:d:10.1007_s10888-017-9369-3 is not listed on IDEAS
    9. Akay, Alpaslan & Bargain, Olivier & Jara, Xavier, 2017. "Back to Bentham, Should We? Large-Scale Comparison of Experienced versus Decision Utility," IZA Discussion Papers 10907, Institute for the Study of Labor (IZA).
    10. Akay, Alpaslan & Bargain, Olivier B. & Jara, H. Xavier, 2017. "Back to Bentham, Should We? Large-Scale Comparison of Experienced versus Decision Utility," GLO Discussion Paper Series 52, Global Labor Organization (GLO).
    11. repec:kap:jecinq:v:15:y:2017:i:4:d:10.1007_s10888-017-9370-x is not listed on IDEAS

    More about this item

    Keywords

    Welfare measures; Labour supply; Preference heterogeneity; C35; D63; D78; H24; H31; J22;

    JEL classification:

    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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