Comparing Inequality Aversion across Countries When Labor Supply Responses Differ

Olivier Bargain, Mathias Dolls, Dirk Neumann (), Andreas Peichl and Sebastian Siegloch

No 7215, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We analyze to which extent social inequality aversion differs across nations when control- ling for actual country differences in labor supply responses. Towards this aim, we estimate labor supply elasticities at both extensive and intensive margins for 17 EU countries and the US. Using the same data, inequality aversion is measured as the degree of redistribution implicit in current tax-benefit systems, when these systems are deemed optimal. We find relatively small differences in labor supply elasticities across countries. However, this changes the cross-country ranking in inequality aversion compared to scenarios following the standard approach of using uniform elasticities. Differences in redistributive views are significant between three groups of nations. Labor supply responses are systematically larger at the extensive margin and often larger for the lowest earnings groups, exacerbating the implicit Rawlsian views for countries with traditional social assistance programs. Given the possibility that labor supply responsiveness was underestimated at the time these programs were implemented, we show that such wrong perceptions would lead to less pronounced and much more similar levels of inequality aversion.

Keywords: optimal income taxation; redistribution; labor supply; social preferences (search for similar items in EconPapers)
JEL-codes: C63 D63 H11 H21 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2013-02
New Economics Papers: this item is included in nep-eur, nep-ltv, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Published - revised version published in: International Tax and Public Finance, 2014, 21(5), 845-873

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Related works:
Journal Article: Comparing inequality aversion across countries when labor supply responses differ (2014)
Working Paper: Comparing inequality aversion across countries when labor supply responses differ (2014)
Working Paper: Comparing Inequality Aversion across Countries when Labor Supply Responses Differ (2014)
Working Paper: Comparing Inequality Aversion across Countries When Labor Supply Responses Differ (2013)
Working Paper: Comparing Inequality Aversion across Countries When Labor Supply Responses Differ (2013)
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