IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

The Optimality of Tax Transfers: What does Life Satisfaction Data Tell Us?

  • Paul Frijters
  • David Johnston

    ()

  • Michael Shields

This paper addresses an important policy question: who gets the largest utility gain from income and does the tax system adequately reflect this? We address this question by using Australian panel data and taking life satisfaction as a proxy for utility, allowing us to identify the marginal utility of additional income for different groups of individuals. We find that optimal transfers consist of transfers from the old to the middle aged, and from the married to the unmarried. This optimal utilitarian welfare policy is then contrasted with information on who actually receives transfers and who pays for them in Australia, where we find that taxes are too high for some groups, like the young, and that they are too low for other groups, like the elderly. We believe that the methodology developed in this paper could be fruitfully applied to the issue of optimal taxation in other countries. Copyright Springer Science+Business Media B.V. 2012

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://hdl.handle.net/10.1007/s10902-011-9293-3
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 under "Related research" (further below) or search for a different version of it.

Article provided by Springer in its journal Journal of Happiness Studies.

Volume (Year): 13 (2012)
Issue (Month): 5 (October)
Pages: 821-832

as
in new window

Handle: RePEc:spr:jhappi:v:13:y:2012:i:5:p:821-832
Contact details of provider: Web page: http://www.springerlink.com/content/1389-4978

Order Information: Web: http://link.springer.de/orders.htm

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Paul Frijters & Robert Gregory, 2006. "From Golden Age to Golden Age: Australia's 'Great Leap Forward'?," The Economic Record, The Economic Society of Australia, vol. 82(257), pages 207-224, 06.
  2. Bernard M.S. van Praag & Barbara E. Baarsma, 2004. "Using Happiness Surveys to Value Intangibles: The Case of Airport Noise," CESifo Working Paper Series 1163, CESifo Group Munich.
  3. Bruno Frey & Simon Luechinger & Alois Stutzer, 2009. "The life satisfaction approach to valuing public goods: The case of terrorism," Public Choice, Springer, vol. 138(3), pages 317-345, March.
  4. Bruno S. Frey & Simon Luechinger & Alois Stutzer, 2007. "Calculating Tragedy: Assessing The Costs Of Terrorism," Journal of Economic Surveys, Wiley Blackwell, vol. 21(1), pages 1-24, 02.
  5. Luechinger, Simon & Meier, Stephan & Stutzer, Alois, 2006. "Bureaucratic Rents and Life Satisfaction," IZA Discussion Papers 1964, Institute for the Study of Labor (IZA).
  6. Paul Frijters & John P. Haisken-DeNew & Michael A. Shields, 2004. "Money Does Matter! Evidence from Increasing Real Income and Life Satisfaction in East Germany Following Reunification," American Economic Review, American Economic Association, vol. 94(3), pages 730-740, June.
  7. Nicole Watson & Mark Wooden, 2004. "The HILDA Survey Four Years On," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 37(3), pages 343-349, 09.
  8. Andrew Clark & Ed Diener & Yannis Georgellis & Richard E. Lucas, 2003. "Lags and Leads in Life Satisfaction: A Test of the Baseline Hypothesis," DELTA Working Papers 2003-14, DELTA (Ecole normale supérieure).
  9. Richard Layard & Guy Mayraz & Stephen Nickell, 2007. "The Marginal Utility of Income," CEP Discussion Papers dp0784, Centre for Economic Performance, LSE.
  10. Jon Gruber & Emmanuel Saez, 2000. "The Elasticity of Taxable Income: Evidence and Implications," NBER Working Papers 7512, National Bureau of Economic Research, Inc.
  11. Dagney Faulk & Jorge Martinez-Vazquez & Sally Wallace, 2007. "Using Human Capital Theory to Establish a Potential Income Tax," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0710, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  12. Clark, Andrew E. & Frijters, Paul & Shields, Michael A., 2007. "Relative Income, Happiness and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," IZA Discussion Papers 2840, Institute for the Study of Labor (IZA).
  13. Winkelmann, Liliana & Winkelmann, Rainer, 1998. "Why Are the Unemployed So Unhappy? Evidence from Panel Data," Economica, London School of Economics and Political Science, vol. 65(257), pages 1-15, February.
  14. Plug, Erik J. S. & van Praag, Bernard M. S. & Hartog, Joop, 1999. "If we knew ability, how would we tax individuals?," Journal of Public Economics, Elsevier, vol. 72(2), pages 183-211, May.
  15. Stutzer, Alois & Frey, Bruno S., 2004. "Stress That Doesn't Pay: The Commuting Paradox," IZA Discussion Papers 1278, Institute for the Study of Labor (IZA).
  16. Bruno S. Frey & Alois Stutzer, 2001. "What Can Economists Learn from Happiness Research?," CESifo Working Paper Series 503, CESifo Group Munich.
  17. Saez, Emmanuel, 2001. "Using Elasticities to Derive Optimal Income Tax Rates," Review of Economic Studies, Wiley Blackwell, vol. 68(1), pages 205-29, January.
  18. Ada Ferrer-i-Carbonell & Bernard M. S. van Praag, 2001. "The Subjective Costs of Health Losses Due to Chronic Diseases: An Alternative Model for Monetary Appraisal," Discussion Papers of DIW Berlin 262, DIW Berlin, German Institute for Economic Research.
  19. Nick Carroll & Paul Frijters & Michael Shields, 2009. "Quantifying the costs of drought: new evidence from life satisfaction data," Journal of Population Economics, Springer, vol. 22(2), pages 445-461, April.
  20. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  21. Anton Hallam & Ernst Juerg Weber, 2008. "Labour Taxes and Work Hours in Australia," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 11(2), pages 117-128, June.
  22. Bernard M.S. van Praag & Paul Frijters, 1999. "The measurement of welfare and well-being; the Leyden approach," School of Economics and Finance Discussion Papers and Working Papers Series 071a, School of Economics and Finance, Queensland University of Technology.
  23. Rafael Di Tella & Robert MacCulloch, 2006. "Some Uses of Happiness Data in Economics," Journal of Economic Perspectives, American Economic Association, vol. 20(1), pages 25-46, Winter.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:spr:jhappi:v:13:y:2012:i:5:p:821-832. 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: (Sonal Shukla)

or (Christopher F Baum)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.