Relative Income, Redistribution and Well-being

Felix FitzRoy and Michael A. Nolan ()
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Michael A. Nolan: University of Hull

No 5241, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In a model with heterogeneous workers and both intensive and extensive margins of employment, we consider two systems of redistribution: a universal basic income, and a categorical unemployment benefit. Well-being depends on own-consumption relative to average employed workers’ consumption, and concern for relativity is a parameter that affects model outcomes. While labour supply incurs positive marginal disutility, we allow negative welfare effects of unemployment. We also compare Rawlsian and utilitarian welfare in general equilibrium under the polar opposite transfer systems, with varying concern for relativity. Basic income Pareto dominates categorical benefits with moderate concern for relativity in both cases.

Keywords: relative income; redistribution; basic income; unemployment benefits; happiness; well-being (search for similar items in EconPapers)
JEL-codes: D40 H20 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2010-10
New Economics Papers: this item is included in nep-hap, nep-lab and nep-pub
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