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Empirical welfare analysis with preference heterogeneity

  • Haan, Peter
  • Decoster, Andre

We apply recently proposed individual welfare measures in the context of preference heterogeneity, derived from structural labour supply models. Contrary to the standard practice of using reference preferences and wages, these measures preserve preference heterogeneity in the normative step of the analysis. They also make the ethical priors, implicit in any interpersonal comparison, more explicit. Information on preference heterogeneity is obtained from a structural discrete choice labor supply model for married women estimated on microdata from the Socio Economic Panel (SOEP) in Germany. We construct welfare orderings of households according to the different metrics, each embodying different ethical choices concerning the treatment of preference heterogeneity in the consumption-leisure space and provide empirical evidence about the sensitivity of the welfare orderings to different normative principles. We also discuss how sensitive the assessment of a tax reform is to the choice of different metrics.

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Paper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order with number 79815.

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Date of creation: 2013
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Handle: RePEc:zbw:vfsc13:79815
Contact details of provider: Web page: http://www.socialpolitik.org/
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  1. Benjamin B. Lockwood & Matthew Weinzierl, 2012. "De Gustibus non est Taxandum: Heterogeneity in Preferences and Optimal Redistribution," Harvard Business School Working Papers 12-063, Harvard Business School, revised Sep 2014.
  2. M. Fleurbaey., 2012. "Beyond GDP: The Quest for a Measure of Social Welfare," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 3.
  3. Charles I. Jones & Peter J. Klenow, 2010. "Beyond GDP? Welfare across Countries and Time," NBER Working Papers 16352, National Bureau of Economic Research, Inc.
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  5. Rolf Aaberge & Ugo Colombino & Steinar Strøm, 2004. "Do more equal slices shrink the cake? An empirical investigation of tax-transfer reform proposals in Italy," Journal of Population Economics, Springer, vol. 17(4), pages 767-785, December.
  6. Marc Fleurbaey, 2005. "Health, Wealth, and Fairness," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(2), pages 253-284, 05.
  7. Roland Iwan Luttens & Erwon Ooghe, 2004. "Is it fair to "make work pay"??," Center for Economic Studies - Discussion papers ces0410, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
  8. Fleurbaey, Marc, 2012. "Fairness, Responsibility, and Welfare," OUP Catalogue, Oxford University Press, number 9780199653591, March.
  9. John Creedy & Nicolas Hérault, 2012. "Welfare-improving income tax reforms: a microsimulation analysis," Oxford Economic Papers, Oxford University Press, vol. 64(1), pages 128-150, January.
  10. Marc Fleurbaey & Fran�ois Maniquet, 2006. "Fair Income Tax," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 55-83.
  11. Decoster, André & Haan, Peter, 2010. "Empirical Welfare Analysis in Random Utility Models of Labour Supply," IZA Discussion Papers 5301, Institute for the Study of Labor (IZA).
  12. Schokkaert, Erik & Van de gaer, Dirk & Vandenbroucke, Frank & Luttens, Roland Iwan, 2004. "Responsibility sensitive egalitarianism and optimal linear income taxation," Mathematical Social Sciences, Elsevier, vol. 48(2), pages 151-182, September.
  13. Arthur van Soest, 1995. "Structural Models of Family Labor Supply: A Discrete Choice Approach," Journal of Human Resources, University of Wisconsin Press, vol. 30(1), pages 63-88.
  14. John Creedy & Nicolas Hérault, 2011. "Decomposing Inequality and Social Welfare Changes: The Use of Alternative Welfare Metrics," Melbourne Institute Working Paper Series wp2011n08, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  15. Roland Hodler, 2009. "Redistribution and Inequality in a Heterogeneous Society," Economica, London School of Economics and Political Science, vol. 76(304), pages 704-718, October.
  16. Bargain, Olivier & Decoster, André & Dolls, Mathias & Neumann, Dirk & Peichl, Andreas & Siegloch, Sebastian, 2011. "Welfare, Labor Supply and Heterogeneous Preferences: Evidence for Europe and the US," IZA Discussion Papers 6102, Institute for the Study of Labor (IZA).
  17. King, Mervyn A., 1983. "Welfare analysis of tax reforms using household data," Journal of Public Economics, Elsevier, vol. 21(2), pages 183-214, July.
  18. Pencavel, John H, 1977. "Constant-Utility Index Numbers of Real Wages," American Economic Review, American Economic Association, vol. 67(2), pages 91-100, March.
  19. M. Fleurbaey & A. Trannoy, 2000. "The Impossibility of a Paretian Egalitarian," THEMA Working Papers 2000-26, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  20. Ian Walker & Ian Preston, 1999. "Welfare measurement in labour supply models with nonlinear budget constraints," Journal of Population Economics, Springer, vol. 12(3), pages 343-361.
  21. Vermeulen, Frederic, 2002. " Collective Household Models: Principles and Main Results," Journal of Economic Surveys, Wiley Blackwell, vol. 16(4), pages 533-64, September.
  22. Donaldson, David, 1992. "On The Aggregation Of Money Measures Of Well-Being In Applied Welfare Economics," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 17(01), July.
  23. repec:ner:tilbur:urn:nbn:nl:ui:12-3106943 is not listed on IDEAS
  24. Bargain, Olivier & Caliendo, Marco & Haan, Peter & Orsini, Kristian, 2006. "'Making Work Pay' in a Rationed Labour Market," IZA Discussion Papers 2033, Institute for the Study of Labor (IZA).
  25. E. Schokkaert & E. Verhofstadt & L. Van Ootegem & -, 2009. "Measuring job quality and job satisfaction," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 09/620, Ghent University, Faculty of Economics and Business Administration.
  26. Viktor Steiner & Katharina Wrohlich & Peter Haan & Johannes Geyer, 2008. "Documentation of the Tax-Benefit Microsimulation Model STSM: Version 2008," Data Documentation 31, DIW Berlin, German Institute for Economic Research.
  27. Marc Fleurbaey & Guillaume Gaulier, 2009. "International Comparisons of Living Standards by Equivalent Incomes," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(3), pages 597-624, 09.
  28. Charles F. Manski, 2012. "Identification of Preferences and Evaluation of Income Tax Policy," NBER Working Papers 17755, National Bureau of Economic Research, Inc.
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