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Normative Analysis with Societal Constraints

Author

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  • Robin Boadway
  • Nicolas-Guillaume Martineau

Abstract

This paper examines the question of achieving a societal consensus around redistributive policies. Its extent is measured by the degree of work participation among the different skill classes that populate the economy. This consensus is driven both by the material incentives and heterogeneous preferences for leisure of each skill class, and an endogenous social norm, which embodies societal attitudes towards distributive justice. Results for optimal redistributive taxation in the presence of an extensive margin of participation show that when a norm is present, participation taxes are generally lower (resp. higher) than when it is not, whenever it enters as a benefit or cost for participants (resp. a cost for non-participants). In the event of multiple participation equilibria, it is examined how changes in the progressivity of taxation may induce shifts in equilibria. This multiplicity of equilibria is thereafter exploited as a constraint on the social planner, which views societal consensus as an objective.

Suggested Citation

  • Robin Boadway & Nicolas-Guillaume Martineau, 2013. "Normative Analysis with Societal Constraints," CESifo Working Paper Series 4305, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_4305
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp4305.pdf
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    References listed on IDEAS

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    1. Roland Bénabou & Jean Tirole, 2006. "Belief in a Just World and Redistributive Politics," The Quarterly Journal of Economics, Oxford University Press, vol. 121(2), pages 699-746.
    2. Emmanuel Saez & Stefanie Stantcheva, 2016. "Generalized Social Marginal Welfare Weights for Optimal Tax Theory," American Economic Review, American Economic Association, vol. 106(1), pages 24-45, January.
    3. Thomas Aronsson & Tomas Sjögren, 2010. "Optimal income taxation and social norms in the labor market," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(1), pages 67-89, February.
    4. Lindbeck, Assar, 1995. " Welfare State Disincentives with Endogenous Habits and Norms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 477-494, December.
    5. George A. Akerlof, 1980. "A Theory of Social Custom, of which Unemployment may be One Consequence," The Quarterly Journal of Economics, Oxford University Press, vol. 94(4), pages 749-775.
    6. Dufwenberg, Martin & Lundholm, Michael, 2001. "Social Norms and Moral Hazard," Economic Journal, Royal Economic Society, vol. 111(473), pages 506-525, July.
    7. Laurence Kranich & Matteo Cervellati & Joan Esteban, 2010. "Work Values, Endogenous Sentiments and Redistribution," Discussion Papers 10-05, University at Albany, SUNY, Department of Economics.
    8. Romer, Thomas, 1975. "Individual welfare, majority voting, and the properties of a linear income tax," Journal of Public Economics, Elsevier, vol. 4(2), pages 163-185, February.
    9. Emmanuel Saez, 2002. "Optimal Income Transfer Programs: Intensive versus Extensive Labor Supply Responses," The Quarterly Journal of Economics, Oxford University Press, vol. 117(3), pages 1039-1073.
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    11. Diamond, P., 1980. "Income taxation with fixed hours of work," Journal of Public Economics, Elsevier, vol. 13(1), pages 101-110, February.
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    More about this item

    Keywords

    optimal taxation; societal consensus; social norms; work participation; distributive justice; redistribution;

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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