Some Hicksian and Marshallian consumer's surplus estimates in discrete choice

This note describes the theory and practice of applying the Hicksian approach to cost-benefit analysis to discrete choice models. It illustrates the technique with numerical estimates of Hicksian and Marshallian consumer's surplus measures based on computer simulations using real-world data.     

Finance,income inequality and income redistribution

Using a panel fixed effects model for a large sample of countries covering 1975–2005, we test the hypothesis that income inequality caused by finance (financial development, financial liberalization and banking crises) is related to more income redistribution than inequality caused by other factors. Our results provide evidence in support of this hypothesis. We also find that the impact of inequality on redistribution is conditioned by ethno-linguistic fractionalization. Our findings are robust to the inclusion of several control variables suggested by previous studies.     

Consumption smoothing and income redistribution

We show theoretically that income redistribution benefits borrowing-constrained individuals more than is implied by standard relative-income and uninsurable-risk considerations. Empirically, we find in international opinion-survey data that younger and lower-income individuals express stronger support for government redistribution in countries where consumer credit is less easily available. This evidence supports our theoretical perspective if such individuals are more strongly affected by tighter credit supply, in that expectations of higher incomes in the future increase their propensity to borrow.     

The effects of progressive wealth redistribution on an economy's development performance

With the exception of studies concerning the effects of land reform programs on total agricultural output, there has been a lack of studies on how changes in the distribution of wealth may effect an economy's development performance. The objective of this study is to fill this gap and to show that under certain conditions progressive wealth redistribution can lead to an increase in an economy's rate of growth. A model is presented that incorporates portfolio behavior and financial markets into a two-sector input-output model. Model simulations are utilized to show that the major condition under which redistribution is favorable to growth is that the lower wealth group have a smaller marginal propensity to accumulate consumer durables than the upper wealth group.     

Transfer principles in income redistribution

Dalton's principle of transfer for income redistribution says that society will be better off when a unit of income in transferred from a richer to a poorer individual. This paper investigates the conjunction of a natural extension of Dalton's principle — which says that any combination of a socially desirable transfer with its inverse at uniformly higher levels of income will have positive social benefit — and a traditional utilitarian-egalitarian formulation of social welfare. The transfer principles involved in the extension of Dalton's rule correspond to stochastic dominance relations between income distributions with a common mean, and lead to the conclusion that, when ? and g are income distributions, the social welfare of ? is larger than that of g if $\text{Σe}{}^{\mathrm{-ax}}\text{?(x)<Σe}{}^{\mathrm{-ax}}\text{g(x)}$ for all positive a. This conclusion is intimately connected with a measure of income inequality studied by Kolm.     

Immigration and income redistribution in welfare states

This paper sets out a political economy model where median voters who benefit from local income redistribution are affected by the fiscal burden of welfare payments to immigrants. The median voters also have cultural preferences. Immigrants are influenced in their relocation decision by welfare benefits in host countries. Uncoordinated, coordinated and leader–follower domestic welfare policies are compared. In the last case, the median voter in the follower country is better off than the median voter in the leader country because of a less generous welfare system and hence fewer immigrants.     

A decomposition theorem for income redistribution policies

Income redistribution policies are examined in a model where households differ from each other in a vector of characteristics. It is shown that any redistribution policy can be expressed as the sum of a set of policies, each of which transfers income only within cohorts of households that are identical in all characteristics except one.     

Flat income taxation,redistribution and labour market performance

A flat tax rate on labour income has gained popularity in European countries. This article assesses the attractiveness of such a flat tax in achieving redistributive objectives with the smallest distortions to employment. We do so by using a detailed applied general equilibrium model for the Netherlands. The model is empirically grounded in the data and encompasses decisions on hours worked, labour force participation, skill formation, wage bargaining between unions and firms and a wide variety of institutional details. The simulations suggest that the replacement of the current tax system in the Netherlands by a flat rate will harm labour market performance if aggregate income inequality is contained. Only flat tax reforms that reduce redistribution will raise employment. This finding bolsters the notions from optimal tax literature regarding the equity-efficiency trade off and the superiority of nonlinear taxes to obtain redistributive goals in an efficient way.