IDEAS home Printed from https://ideas.repec.org/p/lvl/lacicr/1114.html
   My bibliography  Save this paper

Mobility, Taxation and Welfare

Author

Listed:
  • Sami Bibi
  • Jean-Yves Duclos
  • Abdelkrim Araar

Abstract

Income mobility is often thought to equalize permanent incomes and thereby to improve social welfare. The welfare analysis of mobility often fails, however, to account for the cost of the variability of periodic incomes around permanent incomes. This paper assesses the net welfare benefit of mobility by assuming both a social aversion to inequality in permanent incomes and an individual aversion to variability in periodic incomes. The paper further investigates the combined (and comparative) impact of mobility and of the tax system (another presumed income equalizer) on the dynamics of income across time and on the inequality of income across individuals. Using panel data, we find that Canada’s tax system limits significantly the redistributive impact of mobility while also lowering considerably the cost of income variability. The permanent income equalizing effect of taxes can reach up to 23 percent of mean income at the higher values of inequality aversion that we use. Globally, the net social welfare effect of both mobility and taxation is (almost always) positive and substantial, often amounting to around 30 percent of mean income. For all choices of parameter values, the tax effect exceeds by far the net effect of mobility on inequality and social welfare.

Suggested Citation

  • Sami Bibi & Jean-Yves Duclos & Abdelkrim Araar, 2011. "Mobility, Taxation and Welfare," Cahiers de recherche 1114, CIRPEE.
  • Handle: RePEc:lvl:lacicr:1114
    as

    Download full text from publisher

    File URL: http://www.cirpee.org/fileadmin/documents/Cahiers_2011/CIRPEE11-14.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Peter Gottschalk & Enrico Spolaore, 2002. "On the Evaluation of Economic Mobility," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 191-208.
    2. Roland Benabou & Efe A. Ok, 2000. "Mobility as Progressivity: Ranking Income Processes According to Equality of Opportunity," Working Papers 150, Princeton University, School of Public and International Affairs, Discussion Papers in Economics.
    3. Mark M. Trede, 1998. "The age profile of mobility measures: an application to earnings in West Germany," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(4), pages 397-409.
    4. Rolf Aaberge & Magne Mogstad, 2009. "On the Measurement of Long-Term Income Inequality and Income Mobility," ICER Working Papers 09-2009, ICER - International Centre for Economic Research.
    5. Fellman, J, 1976. "The Effect of Transformations on Lorenz Curves," Econometrica, Econometric Society, vol. 44(4), pages 823-824, July.
    6. Dardanoni Valentino, 1993. "Measuring Social Mobility," Journal of Economic Theory, Elsevier, vol. 61(2), pages 372-394, December.
    7. Michael Beenstock, 2004. "Rank And Quantity Mobility In The Empirical Dynamics Of Inequality," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 50(4), pages 519-541, December.
    8. Shorrocks, A F, 1976. "Income Mobility and the Markov Assumption," Economic Journal, Royal Economic Society, vol. 86(343), pages 566-578, September.
    9. Paul Makdissi & Quentin Wodon, 2003. "Risk-adjusted measures of wage inequality and safety nets," Economics Bulletin, AccessEcon, vol. 9(1), pages 1-10.
    10. repec:ebl:ecbull:v:9:y:2003:i:1:p:1-10 is not listed on IDEAS
    11. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
    12. N. Anders Klevmarken, 2004. "On The Wealth Dynamics Of Swedish Families, 1984–98," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 50(4), pages 469-491, December.
    13. Gary Fields, 2010. "Does income mobility equalize longer-term incomes? New measures of an old concept," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 8(4), pages 409-427, December.
    14. Creedy, John & Wilhelm, Mark, 2002. "Income Mobility, Inequality and Social Welfare," Australian Economic Papers, Wiley Blackwell, vol. 41(2), pages 140-150, June.
    15. Rafael Salas & Isabel Rabadan, 1998. "Lifetime And Vertical Intertemporal Inequality, Income Smoothing, And Redistribution: A Social Welfare Approach," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 44(1), pages 63-79, March.
    16. Fields, Gary S. & Ok, Efe A., 1996. "The Meaning and Measurement of Income Mobility," Journal of Economic Theory, Elsevier, vol. 71(2), pages 349-377, November.
    17. Shorrocks, Anthony, 1978. "Income inequality and income mobility," Journal of Economic Theory, Elsevier, vol. 19(2), pages 376-393, December.
    18. Jakobsson, Ulf, 1976. "On the measurement of the degree of progression," Journal of Public Economics, Elsevier, vol. 5(1-2), pages 161-168.
    19. Jarvis, Sarah & Jenkins, Stephen P, 1998. "How Much Income Mobility Is There in Britain?," Economic Journal, Royal Economic Society, vol. 108(447), pages 428-443, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Mobility, Taxation and Welfare
      by maximorossi in NEP-LTV blog on 2011-06-29 20:27:32

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. B. Cecilia Garcia-Medina & Jean-François Wen, 2018. "Income instability and fiscal progression," Canadian Journal of Economics, Canadian Economics Association, vol. 51(2), pages 419-451, May.
    2. Antonio Abatemarco, 2017. "Evaluating Economic Mobility under Opportunity Egalitarianism," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(12), pages 260-277, December.
    3. Florent Bresson & Jean-Yves Duclos & Flaviana Palmisano, 2019. "Intertemporal pro-poorness," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 52(1), pages 65-96, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. John Creedy & Elin Halvorsen & Thor O. Thoresen, 2013. "Inequality Comparisons In A Multi-Period Framework: The Role Of Alternative Welfare Metrics," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 59(2), pages 235-249, June.
    2. Markus Jäntti & Stephen P. Jenkins, 2013. "Income Mobility," SOEPpapers on Multidisciplinary Panel Data Research 607, DIW Berlin, The German Socio-Economic Panel (SOEP).
    3. Antonio Abatemarco, 2017. "Evaluating Economic Mobility under Opportunity Egalitarianism," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(12), pages 260-277, December.
    4. Rolf Aaberge & Magne Mogstad, 2009. "On the Measurement of Long-Term Income Inequality and Income Mobility," ICER Working Papers 09-2009, ICER - International Centre for Economic Research.
    5. R. Bénabou & E. Ok, 2000. "Mobility as Progressivity: Ranking Income Processes According to Equality of Opportunity," Princeton Economic Theory Papers 00f1, Economics Department, Princeton University.
    6. Gerhard Riener, 2012. "Inequality and mobility of household incomes in Europe: evidence from the ECHP," Applied Economics, Taylor & Francis Journals, vol. 44(3), pages 279-288, January.
    7. Dirk Van de gaer & Flaviana Palmisano, 2018. "Growth, Mobility and Social Welfare," SOEPpapers on Multidisciplinary Panel Data Research 988, DIW Berlin, The German Socio-Economic Panel (SOEP).
    8. François Bourguignon, 2011. "Non-anonymous growth incidence curves, income mobility and social welfare dominance," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 9(4), pages 605-627, December.
    9. Satya R. Chakravarty & Nachiketa Chattopadhyay & Nora Lustig & Rodrigo Aranda, 2020. "Measuring Directional Mobility: The Bartholomew and Prais-Bibby Indices Reconsidered," Research on Economic Inequality, in: Juan Gabriel Rodríguez & John A. Bishop (ed.), Inequality, Redistribution and Mobility, volume 28, pages 75-96, Emerald Publishing Ltd.
    10. Florent Bresson & Jean-Yves Duclos & Flaviana Palmisano, 2019. "Intertemporal pro-poorness," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 52(1), pages 65-96, January.
    11. Gary Fields, 2010. "Does income mobility equalize longer-term incomes? New measures of an old concept," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 8(4), pages 409-427, December.
    12. Van de gaer, Dirk & Palmisano, Flaviana, 2021. "Growth, mobility and social progress," Journal of Comparative Economics, Elsevier, vol. 49(1), pages 164-182.
    13. Kai-yuen Tsui, 2009. "Measurement of income mobility: a re-examination," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 33(4), pages 629-645, November.
    14. Gary S. Fields, 2019. "Concepts of social mobility," WIDER Working Paper Series wp-2019-106, World Institute for Development Economic Research (UNU-WIDER).
    15. Nicholas Rohde & Kam Ki Tang & D.S. Prasada Rao, 2014. "Distributional Characteristics of Income Insecurity in the U.S., Germany, and Britain," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(S1), pages 159-176, May.
    16. Mr. Tom Krebs & Mr. William Maloney & Mr. Pravin Krishna, 2013. "Income Mobility and Welfare," IMF Working Papers 2013/024, International Monetary Fund.
    17. Sanghamitra Bandyopadhyay & Gaston Yalonetzky, 2016. "An individual-based approach to measurement of multiple-period mobility for nominal and ordinal variables," Working Papers 65, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
    18. Higgins, Sean & Lustig, Nora, 2016. "Can a poverty-reducing and progressive tax and transfer system hurt the poor?," Journal of Development Economics, Elsevier, vol. 122(C), pages 63-75.
    19. Peter Gottschalk & Enrico Spolaore, 2002. "On the Evaluation of Economic Mobility," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 191-208.
    20. Yoram Amiel & Michele Bernasconi & Frank Cowell & Valentino Dardanoni, 2015. "Do we value mobility?," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 44(2), pages 231-255, February.

    More about this item

    Keywords

    Mobility; social welfare; risk; income variability; inequality; permanent income;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • 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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:lvl:lacicr:1114. 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: . General contact details of provider: https://edirc.repec.org/data/cirpeca.html .

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Manuel Paradis (email available below). General contact details of provider: https://edirc.repec.org/data/cirpeca.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.