Tax-Benefit Systems in Europe and the US: Between Equity and Efficiency

47 Pages Posted: 2 Aug 2011

See all articles by Olivier Bargain

Olivier Bargain

IZA Institute of Labor Economics; University College Dublin (UCD)

Mathias Dolls

University of Cologne - Faculty of Management, Economics and Social Sciences; IZA

Dirk Neumann

University of Cologne

Andreas Peichl

ZEW – Leibniz Centre for European Economic Research; University of Mannheim - School of Economics (VWL); IZA Institute of Labor Economics; University of Essex - Institute for Social and Economic Research (ISER)

Sebastian Siegloch

IZA Institute of Labor Economics; University of Mannheim - Department of Economics; ZEW – Leibniz Centre for European Economic Research - Corporate Taxation and Public Finance Research; CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: July 29, 2011

Abstract

Whether observed differences in redistributive policies across countries are the result of differences in social preferences or efficiency constraints is an important question that paves the debate about the optimality of welfare regimes. To shed new light on this question, we estimate labor supply elasticities on microdata and adopt an inverted optimal tax approach to characterize the redistributive preferences embodied in the welfare systems of 17 EU countries and the US. Implicit social welfare functions are broadly compatible with the fiction of an optimizing Paretian social planner. Some exceptions due to generous demogrant transfers are consistent with the ignorance of behavioral responses by some European governments and are partly corrected by recent policy developments. Heterogeneity in leisure-consumption preferences somewhat affect the international comparison in degrees of revealed inequality aversion, but differences in social preferences are significant only between broad groups of countries.

Keywords: social preferences, redistribution, optimal income taxation, labor supply

JEL Classification: H110, H210, D630, C630

Suggested Citation

Bargain, Olivier and Dolls, Mathias and Neumann, Dirk and Peichl, Andreas and Siegloch, Sebastian, Tax-Benefit Systems in Europe and the US: Between Equity and Efficiency (July 29, 2011). CESifo Working Paper Series No. 3534. Available at SSRN: https://ssrn.com/abstract=1903677

Olivier Bargain (Contact Author)

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

University College Dublin (UCD) ( email )

Belfield, Dublin 4 4
Ireland
+353 1 716 8357 (Phone)
+353 1 283 0068 (Fax)

HOME PAGE: http://www.ucd.ie/economics/staff/obargain/obargain.htm

Mathias Dolls

University of Cologne - Faculty of Management, Economics and Social Sciences ( email )

Richard-Strauss-Str. 2
Cologne, D-50923
Germany

IZA

P.O. Box 7240
Bonn, D-53072
Germany

HOME PAGE: http://www.iza.org/

Dirk Neumann

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

Andreas Peichl

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

University of Mannheim - School of Economics (VWL) ( email )

Mannheim 68131
Germany

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

University of Essex - Institute for Social and Economic Research (ISER)

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

Sebastian Siegloch

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

University of Mannheim - Department of Economics ( email )

D-68131 Mannheim
Germany

ZEW – Leibniz Centre for European Economic Research - Corporate Taxation and Public Finance Research ( email )

United States

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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