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

  • Olivier Bargain

    (School of Economics and UCD Geary Institute, University College Dublin and IZA)

  • Mathias Dolls

    (University of Cologne and IZA)

  • Dirk Neumann

    (University of Cologne and IZA)

  • Sebastian Siegloch

    (University of Cologne and IZA)

  • Andreas Peichl

    (University of Cologne, IZA and ISER)

Whether observed differences in redistributive policies across countries are the result of differences in social preferences or efficiency 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 fi 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 affect the international comparison in degrees of revealed inequality aversion, but differences in social preferences are signifi cant only between broad groups of countries.

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Paper provided by Geary Institute, University College Dublin in its series Working Papers with number 201101.

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Length: 45 pages
Date of creation: 27 Jan 2011
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Handle: RePEc:ucd:wpaper:201101
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