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Tax-Benefit Systems in Europe and the US: Between Equity and Efficiency

  • BARGAIN Olivier
  • DOLLS Mathias
  • NEUMANN Dirk
  • PEICHL Andreas
  • SIEGLOCH Sebastian

Whether observed di¤erences in redistributive policies across countries are the result of di¤erences in social preferences or e¢ ciency constraints is an important question that paves the debate about the optimality of welfare regimes. To shed new light on this question, we estimate labor supply elasticities on microdata and adopt an inverted optimal tax approach to characterize the redistributive preferences embodied in the welfare systems of 17 EU countries and the US. Implicit social welfare functions are broadly compatible with the ?ction of an optimizing Paretian social planner. Some exceptions due to generous demogrant transfers are consistent with the ignorance of behavioral responses by some European governments and are partly corrected by recent policy developments. Heterogeneity in leisure-consumption preferences somewhat a¤ect the international comparison in degrees of revealed inequality aversion, but di¤erences in social preferences are signi?cant only between broad groups of countries.

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Paper provided by LISER in its series LISER Working Paper Series with number 2011-11.

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Length: 48 pages
Date of creation: Jan 2011
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Handle: RePEc:irs:cepswp:2011-11
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