The Social Marginal Valuation of Income: Australian Estimates from Government Behaviour

John Piggott

The Economic Record, 1982, vol. 58, issue 1, 92-99

Abstract: Alternative public policies frequently incorporate distributional goals. The elasticity of the social marginal valuation of income, ε, can help to derive welfare weights for different individuals in different income groups. Estimates are presented of the elasticity of the social marginal valuation of income implied by the Australian personal income tax, in the period 1968–69 to 1975–76. Both equal absolute (EAS) and equal proportional sacrifice (EPS) models are used to infer the elasticity values. Using taxable income as a proxy for income, the consistent value of ε under EAS was found to range from 2.07 to 2.57; the EPS range was 1.76 to 2.40. A number of considerations suggested a best‐guess magnitude of about 2.2. Caution is urged in the interpretation and use of these results.

Date: 1982
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