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Comparing Inequality Aversion across Countries When Labor Supply Responses Differ

Author

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  • Olivier Bargain

    () (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS, and IZA)

  • Mathias Dolls

    () (IZA and University of Cologne)

  • Dirk Neumann

    () (IZA and the University of Cologne)

  • Andreas Peichl

    () (IZA, U. of Cologne, CESifo and ISER)

  • Sebastian Siegloch

    () (IZA and the University of Cologne)

Abstract

We analyze to which extent social inequality aversion differs across nations when control ling for actual country differences in labor supply responses. Towards this aim, we estimate labor supply elasticities at both extensive and intensive margins for 17 EU countries and the US. Using the same data, inequality aversion is measured as the degree of redistribution implicit in current tax-benefit systems, when these systems are deemed optimal. We find relatively small differences in labor supply elasticities across countries. However, this changes the cross-country ranking in inequality aversion compared to scenarios following the standard approach of using uniform elasticities. Differences in redistributive views are significant between three groups of nations. Labor supply responses are systematically larger at the extensive margin and often larger for the lowest earnings groups, exacerbating the implicit Rawlsian views for countries with traditional social assistance programs. Given the possibility that labor supply responsiveness was underestimated at the time these programs were implemented, we show that such wrong perceptions would lead to less pronounced and much more similar levels of inequality aversion.

Suggested Citation

  • Olivier Bargain & Mathias Dolls & Dirk Neumann & Andreas Peichl & Sebastian Siegloch, 2013. "Comparing Inequality Aversion across Countries When Labor Supply Responses Differ," AMSE Working Papers 1323, Aix-Marseille School of Economics, Marseille, France.
  • Handle: RePEc:aim:wpaimx:1323
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Spencer Bastani & Jacob Lundberg, 2016. "Political Preferences for Redistribution in Sweden," CESifo Working Paper Series 6205, CESifo Group Munich.
    2. Bastani, Spencer & Lundberg, Jacob, 2016. "Political preferences for redistribution in Sweden," Working Paper Series 2016:13, Uppsala University, Department of Economics.
    3. Robin Jessen & Maria Metzing & Davud Rostam-Afschar, 2017. "Optimal Taxation under Different Concepts of Justness," SOEPpapers on Multidisciplinary Panel Data Research 953, DIW Berlin, The German Socio-Economic Panel (SOEP).
    4. repec:kap:jecinq:v:15:y:2017:i:4:d:10.1007_s10888-017-9368-4 is not listed on IDEAS
    5. Benjamin B. Lockwood & Matthew Weinzierl, 2014. "Positive and Normative Judgments Implicit in U.S. Tax Policy, and the Costs of Unequal Growth and Recessions," Harvard Business School Working Papers 14-119, Harvard Business School, revised Oct 2014.
    6. repec:eee:pubeco:v:156:y:2017:i:c:p:81-100 is not listed on IDEAS
    7. Lockwood, Benjamin B. & Weinzierl, Matthew, 2016. "Positive and normative judgments implicit in U.S. tax policy, and the costs of unequal growth and recessions," Journal of Monetary Economics, Elsevier, vol. 77(C), pages 30-47.

    More about this item

    Keywords

    Social preferences; redistribution; optimal income taxation; labor supply.;

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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