The Collective Household, Household Production and Efficiency of Marginal Reforms

Most research on the welfare properties of taxes employs the unitary model of the household, ignoring household production. A simple model provides expressions for the changes in individual utility given marginal reforms to government policy. It is shown that the burden of a higher tax on household goods falls on the household member that consumes more than they produce or purchase. Numerical calculations show that price substitution (complementarity) between home and market labor increases (decreases) aggregate efficiency costs of a marginal redistribution of income without impacting the intra-household distribution of utility changes. Modeling household goods as public versus private can alter the distributional consequences of marginal reforms.     

Green tax reforms and habits

Using a dynamic general equilibrium model, we explore the role of habit formation when analyzing green tax reforms under the double dividend hypothesis. We assume increases in energy taxes and adjust capital taxation in a revenue-neutral framework to evaluate the effects on welfare. Since the existence of an environmental dividend is uncontroversial, we mainly focus on the efficiency dividend. Our findings show that, when taxes on household energy consumption increase, habits and transitional dynamics alter household decisions, and change the efficiency dividend. However, when the tax increase is on energy used as an input, reform always induces a welfare cost in terms of efficiency. In this case, habits play a less important role.     

Multi-dimensional risk and the cost of business cycles

This paper analyzes the welfare costs of business cycles when workers face uninsurable idiosyncratic labor income risk. In accordance with the previous literature, this paper decomposes labor income risk into an aggregate and an idiosyncratic component, but in contrast to the previous literature, this paper allows for multiple sources of idiosyncratic labor income risk. Using the multi-dimensional approach to idiosyncratic risk, this paper provides a general characterization of the welfare cost of business cycles when preferences and the (marginal) process of individual labor income in the economy with business cycles are given. The general analysis shows that the introduction of multiple sources of idiosyncratic risk never decreases the cost of business cycles, and strictly increases it if there are cyclical fluctuations across the different sources of risk. This paper also provides a quantitative analysis based on a version of the model that is calibrated to match US labor market data. The quantitative analysis suggests that realistic variations across two particular dimensions of idiosyncratic labor income risk increase the welfare cost of business cycles by a substantial amount.     

Money,liquidity and welfare

This paper develops an analytically tractable Bewley model of money demand to shed light on some important questions in monetary theory, such as the welfare cost of inflation. It is shown that when money is a vital form of liquidity to meet uncertain consumption needs, the welfare costs of inflation can be extremely large. With log utility and parameter values that best match both the aggregate money demand curve suggested by Lucas (2000) and the variance of household consumption, agents in our model are willing to reduce consumption by 3–4% to avoid 10% annual inflation. The astonishingly large welfare costs of inflation arise because inflation increases consumption risk by eroding the buffer-stock-insurance value of money, thus hindering consumption smoothing at the household level. Such an inflation-induced increase in consumption risk at the micro level cannot be captured by representative-agent models or the Bailey triangle. Although the development of financial intermediation can mitigate the problem, with realistic credit limits the welfare loss of moderate inflation still remains several times larger than estimations based on the Bailey triangle. Our findings provide a strong justification for adopting a low inflation target by central banks, especially in developing countries where money is the major form of household financial wealth.     

Distortionary company car taxation: deadweight losses through increased car ownership

We analyse the effects of distortionary company car taxation through increased household car consumption for the Netherlands. We use several identification strategies and demonstrate that for about 20 % of households company car possession increases car ownership. The annual welfare loss of distortionary company taxation through increased car ownership is generally rather small, maximally €120 per company car, and much less than the welfare loss through increased expenditure on the company car. However, for policies that exempt households from paying tax on their company car, the annual deadweight loss is likely higher. Our first-best tax policy recommendation is to increase company car tax rates. However, our current results suggest that a second-best policy, which keeps average company car taxation constant but which reduces the marginal tax on cheaper cars and increases the marginal tax on expensive cars, would be welfare improving as overconsumption of company cars will be reduced.     

收入结构对家庭消费倾向和消费结构的影响*——基于心理账户视角的研究

本文关注不同收入结构对家庭消费的影响，从行为经济学视角解释了近年来中国居民消费率和非工资性收入占比同时提高的现象。本文使用中国家庭跟踪调查（CFPS）数据，采用面板数据双向固定效应模型进行分析。结果显示，转移性收入和财产性收入的边际消费倾向显著高于工资性收入和经营性收入，财产性收入的边际消费倾向最高，而工资性收入和经营性收入间的边际消费倾向无统计差异。工资性收入和经营性收入更多用于居住等生活必需支出，财产性收入和转移性收入则用于提高众多子类消费。此外，以上结果在城乡间和地区间具有异质性。     

On the marginal excess burden of taxation in an overlapping generations model

We extend marginal excess burden (MEB) analysis in public finance literature to a dynamic general equilibrium model with incomplete markets and heterogeneous households. This extension allows us to quantitatively assess efficiency ranking and incidence of taxes. Our results indicate a disparity in welfare cost and distributional consequence of different forms of taxation on capital, labor and consumption. According to our MEB ranking, capital income taxation appears to be least efficient as it results in larger marginal excess burdens, compared to labor income tax and consumption tax. The tax incidence analysis shows variation of tax burdens across households, depending on their age, income type and generation. In particular, older households with higher income bear the highest burden of company income tax; meanwhile, future born households bear the highest burden of personal income tax. Hence, our MEB analysis demonstrates a fruitful approach to better understanding efficiency and incidence of tax reforms in one unified framework.     

When redistribution makes personalized pricing of externalities useless

We consider a standard optimal taxation framework in which consumers' preferences are separable in consumption and labor and identical over consumption, but are affected by consumption externalities. For every nonlinear, income-dependent pricing of goods there is a linear pricing scheme, combined with an adjusted income tax schedule, that leaves all consumers equally well-off and weakly increases the government's budget. The result depends on whether a linear pricing scheme exists that keeps the aggregate amount of consumption at its initial level observed under nonlinear pricing. We provide sufficient conditions for the assumption to hold. If adjusting the income tax rate is not available, personalized prices for an externality can enhance social welfare if they are redistributive, that is, favor consumers with a larger marginal social value of income.     

Schooling and household welfare: The case of Sri Lanka from 1990 to 2006

This paper looks at the effect schooling has had on household welfare in Sri Lanka during the 1990–2006 period, on average and across the welfare distribution. We account for the endogeneity of schooling using quantile instrumental variable estimation as developed in Chernozhukov, Fernández‐Val, and Kowalski ( 2015 ). We use pooled data from four cross‐sectional Household Income Expenditure Surveys. The results show that an extra year of schooling on the part of the most educated adult member in the household can increase welfare (proxied by real per capita consumption expenditure) by 3.8 percent on average. However, the effect varies considerably across the welfare distribution: At the lower end, around the 20th and 25th quantiles, an extra year of education increases welfare by 6 and 5 percent, respectively, while at the median it is around 3.5 percent. At the higher, 90th quantile it is much less, at 1 percent. Thus the marginal effect of schooling on welfare is significant and positive at all levels of the welfare distribution, but highest at the lower and middle quartiles. This result is different from findings in the literature that tend to show larger effects at higher quantiles, when endogeneity is uncorrected.     

Measuring the Level and Inequality of Wealth: An Application to China

We construct and compare three distinct measures of household asset wealth that complement traditional income‐ or expenditure‐based measures of socioeconomic status. We apply these measures to longitudinal household survey data from China and demonstrate that household asset wealth has been increasing over time, a theme consistent with many previous studies on the process of development in China. Unlike other studies that have shown rising income inequality over time, however, we show that asset wealth inequality has actually been declining in recent years, indicating widespread participation in the benefits of economic reforms. Furthermore, the evolution in the cumulative distribution of household welfare is such that social welfare has been increasing with the passage of time, despite rising inequality in the early years of the survey.     

WELFARE‐MAXIMISING PRICING IN A MACROECONOMIC MODEL WITH IMPERFECT COMPETITION AND CONSUMPTION EXTERNALITIES

This paper develops a simple macroeconomic model with imperfect competition and consumption externalities, and uses it to examine whether the marginal cost pricing rule in the partial equilibrium framework can apply to the general equilibrium framework. It is shown that, for welfare to be maximised, average revenue should be set equal to marginal cost if consumption externalities are either absent or positive. However, for welfare to be maximised, average revenue should be set higher than marginal cost in the presence of negative consumption externalities.     

The income–pollution relationship and the role of income distribution: An analysis of Swedish household data

The main purpose of this study is to analyze the relationship between pollution and income at household level. The study is motivated by the recent literature emphasizing the importance of income distribution for the aggregate relation between pollution and income. The main findings from previous studies are that if the individual pollution–income relationship is non-linear, then aggregate pollution for, say, a whole country, will depend not only on average income, but also on how income is distributed. To achieve our objective we formulate a model for determining the choice of consumption of goods in different types of household. Furthermore we link the demand model to emission functions for various goods. The theoretical analysis shows that without imposing very restrictive assumptions on preferences and the emission functions, it is not possible to determine a priori the slope or the curvature of the pollution–income relation. The empirical analysis shows that, given the model used, the pollution–income relation has a positive slope in Sweden and is strictly concave for all three pollutants under study (CO₂, SO₂, NO_x), at least in the neighbourhood of the observed income for an average household. We also show that altering the prevailing income distribution, holding average income constant, will affect aggregate emissions in the sense that an equalization of incomes will give rise to an increase in emissions. One implication is then that the development of aggregate pollution due to growth depends not only on the income level, but also on how growth is distributed.     

Remittances and household expenditure behaviour: Evidence from Senegal1

We use different econometric techniques, from propensity score matching to multinomial treatment methods, to assess the impact of internal and external remittances on several household budget shares in Senegal. When only considering the average impact of remittances on the household expenditure behaviour, we find an overall productive use of remittances. However, the impact of remittances disappears when the marginal spending behaviour is considered, i.e., households do not show a different consumption pattern with respect to their remittance status. The marginal spending behaviour therefore suggests that, in the decision on how to allocate expenditure, remittances are treated just as any other source of income.     

The effects of welfare and tax reform: the material well-being of single mothers in the 1980s and 1990s

The tax and welfare programs that provide income and in-kind benefits to single mothers have changed dramatically in recent years. These changes began as far back as the mid-1980s and culminated with the 1996 welfare law that ‘ended welfare as we knew it.’ These tax and welfare changes have sharply increased the employment of single mothers and cut welfare rolls. However, little is know about the effects of these policy changes on the material well-being of single mothers and their children. Studies of those leaving welfare have found that a substantial percentage have problems paying rent, purchasing enough food, and paying utility bills. Other studies found a decline in income among the worst-off single mothers after 1994 or 1995. The goal of this paper is to examine the material well-being of single mothers and their families before and after recent welfare and tax reforms. Using data from two nationally representative household surveys we examine the consumption patterns of single mothers and their families from 1984–2000. We find that the material conditions of single mothers did not decline in recent years, either in absolute terms or relative to single childless women or married mothers. This pattern holds for the average single mother as well as for low-educated single mothers at both the 15th and 25th percentiles of the consumption distribution. In most cases, our evidence suggests that the material conditions of single mothers have improved slightly.     

收入再分配对我国居民总消费需求的扩张效应

本文研究我国收入再分配与居民总消费需求的关系。文章利用分组的家庭户数据,用三种方法度量居民消费支出,估计了各收入组的边际消费倾向差异。研究中还将变量间的长期动态关系和通货膨胀因素纳入分析范围。研究结果表明,中国的收入分配显著影响了居民消费。根据本文的模拟计算,即使中低收入阶层的收入份额只有微弱的提高,也可以增加数百亿元的居民消费需求。因此,缩小居民收入差距,加大居民收入再分配的力度,壮大中等收入者的队伍,提高农民收入,对刺激我国居民消费需求具有积极作用。     

Trade, Exchange Rate, and Energy Pricing Reform in Iran: Potentially Large Efficiency Effects and Gains to the Poor

Iran is committed to substantial trade and market reform in its Third Five Year Development Plan. It started, however, with nontariff barriers on all products, a dual exchange rate regime with the market rate more than four times the official rate, and domestic energy product subsidies of about 90%. The authors develop a multisector computable general‐equilibrium model with ten rural and ten urban households to analyze the various reforms, separately and together. Reflecting the large initial distortions, they find that the combined reforms could generate large welfare gains equal to about 50% of aggregate consumer income. Moreover, the results show that well‐intentioned policies of commodity subsidies for the poor can have perverse effects. Even nontargeted direct income payments to all households (not just the poor) would enormously and progressively increase the incomes of the poor compared to the status quo.     

Welfare and the family size decision of low-income,two-parent families

This study determines the increase in family size given an increase in the per child welfare benefit for a family with children in the US. The family size decision was modeled as a discrete choice decision. Data were obtained from the 1980-91 March Current Population Surveys of the US Census Bureau on 13,516 low-income, nonmilitary, non-farm, two-parent families with at least one dependent child. Low income was any amount under twice the official poverty level. Parents were limited to ages 18-40 years. Alaska and Hawaii were excluded. The data sets for 1979-90 were pooled. The sample included 10% Blacks and 27% receiving some amount of welfare. Average ages were 28.9 years for mothers and 30.8 years for fathers. The average number of children was 2.43. Findings from the ordered probit model indicate that education had a negative impact on family size, and age and race had positive impacts. Wages did not have a significant effect. The state unemployment rate and the average state income had negative effects. Unearned income had a small but significant effect on family size. The marginal welfare benefit had a positive impact. Findings reinforce the wealth hypothesis, that wealthier societies have smaller family sizes. Family size declines with increases in wages and education, which reflect increases in opportunity costs for time. Family size increases with age, as rearing children is labor-intensive. Family size increases with unearned income and welfare benefits that make childbearing affordable. It is argued that poor people in developed societies behave more consistently like poor people in developing countries. A 100% increase in the per child welfare benefit resulted in a 2% increase in the number of children. The policy implication is that a considerable increase in welfare benefits will have only trivial behavioral impacts for the poor on family size decisions.     

递增阶梯电价的收入再分配效应研究: 嵌入分时电价更有效吗*

本文从理论与实证角度分析了递增阶梯电价为实现收入再分配目的必然伴随着效率损失,进而探讨嵌入分时电价能否改善两难困境。理论模型刻画了递增阶梯电价追求再分配目的所致两类效率成本的特征、结构和类型,以及递增阶梯电价在实现再分配和最小化效率损失间的两难困境。基于杭州市居民用电和家庭收入等微观数据,使用工具变量,通过反事实场景构建和二次近乎理想需求函数（QUAIDS）模型,实证估算了阶梯电价为实现再分配目的而引致的家庭与社会效率成本,本文为系统评估和完善阶梯水价和气价等政策奠定了基础。     

The implicit welfare weights used when maximizing aggregate surplus

Aggregate consumer and producer surplus is a special type of social welfare function. In this paper, we investigate how individual welfare weights and how the social marginal utility of an increase in an individual's income behave if one uses aggregate surplus as a measure of social welfare. Our conclusion is that aggregate surplus is an ethically unacceptable measure of social welfare.I am grateful to B. De Borger and to an anonymous referee for helpful comments and suggestions on an earlier version of this paper. Of course, all remaining errors are mine.     

Tax reform in a two-class growth model

This paper analyzes the welfare and distributional effects of tax reforms in a two-class model with exogenous labour supply. It extends the empirically calibrated, standard life-cycle model to include both pure life-cycle savers and households with an altruistic bequest motive. The tax reform simulations cover the move from an income to a wage and a consumption tax, respectively. The role of borrowing constraints is studied and a dynamic analysis of tax reforms using a static expectation approach is performed. The simulation results indicate that the two tax reforms have different impacts on the welfare of the two classes: while the pure life-cycle savers are better off with the consumption tax, the altruistically motivated households gain more under a wage tax. The results further show that while the introduction of a consumption tax is distributionally neutral, the move to a wage tax substantially increases income and wealth inequality.