long run welfare under externalities in consumption leisure and production a case for happy degrowth vs unhappy growth in this paper we contribute to the debate on the relationship between growth and well being by examining an endogenous growth model where we allow for externalities in consumption leisure and production we analyze three regimes a decentralized economy where each household makes isolated choices without considering their external effects a planned economy where a myopic planner fails to recognize both leisure and consumption externalities but recognizes production externalities and a planned economy with a fully informed planner we first compare the balanced growth paths under the three regimes and then we numerically investigate the transition to the optimal balanced growth path we provide a number of findings first in a decentralized economy growth or labor or both are greater than in the regime with a fully informed planner and hence are sub optimal from a welfare standpoint second a myopic intervention which overlooks consumption and leisure externalities leads to more growth and labor than in both the decentralized and the fully informed regime third we provide a case for happy degrowth a transition to the optimal balanced growth path that is associated with downscaling of production a reduction in private consumption and an ongoing increase in leisure and well being

is there a demand for income tax progressivity recently marhuenda and ortuno ortin economics letters 48 1995 319 have provided a popular support for progressivity theorem that says that a marginal progressive tax always defeats a marginal regressive tax as long as individuals vote for the tax scheme minimizing their tax liabilities and the median income is less than the mean income in this paper we provide under similar circumstances a popular support for regressivity theorem according to which for any existing tax scheme there is always a majority support for a regressive reform reducing marginal progressivity or increasing marginal regressivity this regressive reform is supported by both extremes of the income distribution combining this result with marhuenda and ortuno ortin s result implies that vote cycling between regressive and progressive tax reform is inevitable and thus that the demand for progressivity cannot be established in the standard downsian framework with self interested voters

tax evasion on a social network abstract we relate tax evasion behavior to a substantial literature on social comparison in judgements taxpayers engage in tax evasion as a means to boost their expected consumption relative to others in their social network the unique nash equilibrium of the model relates optimal evasion to a bonacich measure of network centrality more central taxpayers evade more given that tax authorities are now investing heavily in big data tools that aim to construct social networks we investigate the value of acquiring network information we do this using networks that allow for celebrity taxpayers whose consumption is seen widely and who are systematically of higher wealth we show that there are pronounced returns to the initial acquisition of network information especially in the presence of celebrity taxpayers

the redistributive effect of health care finance in twelve oecd countries the oecd countries finance their health care through a mixture of taxes social insurance contributions private insurance premiums and out of pocket payments the various payment sources have very different implications for both vertical and horizontal equity and on redistributive effect which is a function of both this paper presents results on the income redistribution consequences of the health care financing mixes adopted in twelve oecd countries by decomposing the overall income redistributive effect into a progressivity horizontal inequity and reranking component the general finding of this study is that the vertical effect is much more important than horizontal inequity and reranking in determining the overall redistributive effect but that their relative importance varies by source of payment public finance sources tend to have small positive redistributive effects and less differential treatment while private financing sources generally have larger negative redistributive effects which are to a substantial degree caused by differential treatment

progressivity horizontal equity and reranking in health care finance a decomposition analysis for the netherlands this paper employs the method of aronson et al 1994 to decompose the redistributive effect of the dutch health care financing system into three components a progressivity component a classical horizontal equity component and a reranking component results are presented for the health care financing system as a whole as well as for its constituent parts a final section sets out to uncover the relative importance in terms of their effects on progressivity horizontal equity and reranking of the key institutional features of one component of the dutch system the awbz social insurance scheme

choosing the joneses endogenous goals and reference standards a growing economic literature stresses the importance of relative comparisons e g for savings and consumption or happiness in this literature it is usually assumed that reference standards against which people compare themselves are exogenously given in contrast findings from social psychology suggest that people play an active role in determining their reference standards we introduce a social comparison model where people choose their reference standards to serve motives of self improvement and self enhancement the model predicts that reference standards increase in individuals abilities and that people thus tend to compare themselves to similar others the results of a questionnaire study confirm the prediction of the model

relativity mobility and optimal nonlinear income taxation in an open economy abstract recent evidence suggests that globalization has reduced the barriers to international labor mobility and induced more cross country social comparisons in an open economy with tax driven migration and consumption externalities relativity we derive an optimal tax formula that subsumes existing ones obtained under a maximin social objective and additively separable utility and sign the second best mirrleesian marginal tax rates for all skill levels we establish the thresholds of the elasticity and level of migration to determine when relativity and inequality act as complements or substitutes in shaping the optimal top tax rate under both nash and stackelberg tax competition if the migration probability of top income workers is approximately 50 numerical calculation using parameter estimates from empirical studies shows that the country with labor inflow outflow implements over 10 lower higher marginal tax rates than suggested by the autarky equilibrium of kanbur and tuomala 2013

social comparisons and optimal taxation in a small open economy in this paper we analyze how international capital mobility affects the optimal labor and capital income tax policy in a small open economy when consumers care about relative consumption the main

social comparisons of wage increases and job satisfaction abstractwe combine status quo and social comparison considerations and investigate whether relative wage increases in the sense of differences between individual wage increases and wage increases of comparable employees are related to managers job satisfaction using a panel data set of managers in the german chemical industry we indeed find first evidence the relation between relative wage increases and job satisfaction is relevant for managers with lower absolute wage levels in particular

conspicuous consumption and political regimes evidence from east and west germany abstract this paper investigates the influence of political regimes on the relative importance of conspicuous consumption we use the division of germany into the communist gdr and the democratic frg and its reunification in 1990 as a natural experiment relying on household data that are representative for germany our empirical results strongly indicate that conspicuous consumption is relatively more important in east germany significantly although we find some convergence a considerable gap in conspicuous consumption expenditures remains even 18 years after the german reunification

on the optimal marginal rate of income tax abstract the paper shows that in the quasi linear model of income taxation the optimal marginal rate of tax can be calculated without needing to specify the utility of consumption this result is used to investigate the qualitative behavior of the marginal rate it is shown that every possible qualitative outcome may be achieved by appropriate selection of the skill distribution therefore the model does not place any a priori restrictions on the behavior of the marginal rate and the constancy of findings in previous simulation analysis is a consequence of their restricted structures

equity well being and economic choice a review of horizontal equity uncertainty and economic well being edited by martin david and timothy smeeding chicago university of chicago press for the national bureau of economic research

a reduced form optimal nonlinear income tax problem abstract for a finite population with quasilinear preferences it is shown how mirrlees optimal nonlinear income tax problem can be simplified to a reduced form problem involving only the allocation of the consumption good this result is a finite version of a proposition established in the continuum by s lollivier and j c rochet

relative income effects on subjective well being in the cross section abstract recent work suggests that a person s subjective well being swb depends to a large degree on relative income focusing on the underlying identification this paper makes four contributions to this literature it describes the aggregation problem with past studies implements an estimation strategy to overcome this problem finds micro level evidence in support of the hypothesis that relative income does matter in individual assessments of swb and uses cross section estimates to replicate the aggregate time series the evidence further indicates that relative income effects may be smaller at low income levels the results are obtained from ordered probit techniques and the general social survey gss

majority support for progressive income taxation with corner preferences this paper studies voting over quadratic taxation when incomeis fixed and taxation non distortionary the set of feasibletaxes is compact and self interested voters have cornerpreferences we first show that if a majority winning taxpolicy exists it involves maximum progressivity we then givea necessary and sufficient condition on the incomedistribution for a majority winner to exist this conditionappears to be satisfied for a large class of distributionfunctions

when information dominates comparison abstract we propose a micro econometric evaluation of the relation between life satisfaction and income distribution using a balanced panel survey of the russian population russian longitudinal monitoring survey rlms running from 1994 to 2000 covering 4685 individuals we show that in the context of the very volatile russian environment hirschman s q j econ 87 1973 544 tunnel effect conjecture seems to be confirmed variables reflecting income distribution do not influence satisfaction through social comparisons individuals rather seem to use their informational content in order to form their expectations the reference group s income thereby exerts a positive influence on individual satisfaction which contrasts with other studies on the subject inequality indices do not affect individual welfare

job satisfaction and co worker wages status or signal we use matched employer employee panel data to show that individual job satisfaction is higher when other workers in the same establishment are better paid this runs counter to substantial existing evidence of income comparisons in subjective well being we argue that the difference hinges on the nature of the reference group we here use co workers their earnings not only induce jealousy but also provide a signal about the worker s own future earnings in our data this positive future earnings signal outweighs any negative status effect this phenomenon is stronger for men and in the private sector but weaker for those nearer retirement

engineering an incentive to search for work a comparison groups approach social comparisons are important in the employment sphere a culture of unemployment may evolve and prevail because it is optimal for an individual to remain unemployed when other unemployed individuals constitute his main reference group we advance the idea that by making the receipt of unemployment benefits conditional on engagement in an incentive enhancing activity for example work under state sponsored employment schemes or participation in work site based training programs a government can engineer a revision of the reference groups of an unemployed individual in order to induce him to seek work

clean evidence on peer effects we study subjects who were asked to fill letters into envelopes with a remuneration independent of output in the pair treatment two subjects worked at the same time in the same room and peer effects were possible in the single treatment subjects worked alone and peer effects were ruled out we find evidence of peer effects in the pair treatment because the standard deviations of output are smaller within pairs than between pairs moreover average output is higher in the pair treatment thus peer effects raise productivity finally low productivity workers are the most sensitive to the behavior of peers

skill distribution and the optimal marginal income tax rate abstract this paper emphasizes the role of skill distribution in determining the optimal marginal tax rates it rigorously shows that the optimal marginal tax rates can be strictly increasing strictly decreasing u shaped or inverse u shaped as skill increases depending on the skill distribution

hedonic recall bias why you should not ask people how much they earn abstract the empirical literature which explores the effect of wage on job satisfaction typically uses data drawn from social surveys in these surveys the amount of wage is reported by the respondents themselves thus the explanatory variable of the econometric models may differ from the true wage people earn our paper shows that the use of survey data can lead to considerable over estimation of the importance of wage as a determinant of wage satisfaction in particular responses seem to be affected by a recall bias people who are satisfied with their wage are more likely to over report their wage in questionnaires the more satisfied they are the more they over report and vice versa unsatisfied people we name this behavioral disposition hedonic recall bias

dynamic status effects savings and income inequality this paper advances the hypothesis that the intensity of status preferences depends negatively on the average wealth of society endogenous dynamic status effect in accordance with empirical evidence our theory replicates the contradictory historical facts of an increasing saving rate along with declining returns to capital over time by affecting the dynamics of the saving rate the dynamic status effect raises inequality thereby providing a behavioural mechanism for the observed diverse dynamics of income inequality across countries in countries in which the dynamic status effect is strong weak inequality rises declines over time in response to a positive productivity shock

redistributive effect progressivity and differential tax treatment personal income taxes in twelve oecd countries this paper decomposes the redistributive effect of the personal income taxes pits of twelve oecd countries into four components i an average rate effect ii a departure from proportionality or progressivity effect iii a horizontal equity effect and iv a reranking effect the product of i and ii indicates the vertical redistribution associated with the pit and the sum of iii and iv indicates the impact on the distribution of income of differential tax treatment the average tax rate is found to be low in france and high in the nordic countries and the pit is found to be most progressive in france ireland and spain and least progressive in denmark and sweden taking i and ii together denmark and the us achieve broadly similar levels of vertical redistributive effect differential treatment is found to have a much smaller effect on income redistribution as a proportion of redistributive effect than the vertical redistribution caused by progressivity though there are differences between countries these differences appear to be due principally to a different emphasis on deductions such as tax deductibility of mortgage interest payments and insurance premiums and on local income tax

caste comparisons in india evidence from subjective well being data this paper evaluates how caste influences economic comparisons in india using happiness data from an original panel survey we find that both within caste comparisons and between caste comparisons reduce well being between caste comparisons reduce well being three times more than within caste comparisons in absolute terms an increase in rival caste expenditures affects well being as much as primary expenditure these findings highlight the strong influence that comparisons between rival castes have on well being yet this comparison scheme turns out to be asymmetrical only low caste individuals are affected by the economic successes of their rivals whereas only higher caste individuals compete with their fellows

endogenous aspirations growth and the rise of environmental concerns abstract in this paper we analyze the implications of assuming that the intensity of aspirations is endogenous in accordance with empirical evidence consumption aspirations decrease with capital accumulation while environmental ones increase we show that such a change in the intensity of aspirations gives rise to a u shaped relationship between capital accumulation and environmental quality we also study the implications of our assumption concerning the optimal allocation and show that the steady state capital stock can be larger or smaller than the one corresponding to the modified golden rule in addition for realistic parameter values the decentralization of the optimal allocation requires the implementation of a maintenance investment subsidy and a lump sum transfer from the old to the young generation

relative pay and labor supply we examine the impact of relative wages on labor supply in a laboratory experiment we test the hypothesis that ceteris paribus making a given wage high low relative to other wage levels will lead to an increase decrease in labor supply we find that labor supply does respond significantly to relative pay and in the expected direction however when a strong enough reason for the relative low pay is given this difference disappears

merit pay and wage compression with productivity differences and uncertainty abstract this paper experimentally investigates wage setting and effort choices in a multi worker setting when there is heterogeneity in worker productivity and managers perception of this productivity is imperfect worker ability is assigned via an aptitude test and in an innovative design manager uncertainty concerning this ability is related to the manager s own test performance we propose a merit pay hypothesis that higher ability workers will reduce their effort if they are not paid more than coworkers with lower ability but not vice versa based on a simple model we also predict that the higher the uncertainty about employee ability levels the more managers compress wages between perceived high and low ability workers we find strong experimental support for both hypotheses

comparing with the average reference points and market reactions to above average earnings surprises abstract we examine whether the average earnings surprises announced yesterday affect investors responses to earnings news announced today we find that in the short window surrounding an earnings announcement the market rewards today s earnings news that is above yesterday s average earnings surprises with a premium consistent with yesterday s average becoming a reference point for investors to classify today s earnings news as a gain or a loss the price premium for an above average earnings surprise is larger when more earnings announcements are made on the same day and when investors face greater uncertainty in assessing firms performance we interpret this evidence as suggesting that investors rely more on the average as a reference point when they are more likely to be subject to cognitive constraints in processing information we also find that firms announcing above average earnings surprises exhibit a greater abnormal trading volume consistent with the notion that beating reference points prompts investors to trade

inherent inequality and the optimal graduation of marginal tax rates in most countries marginal tax rates increase with income this is at variance with the results of the optimal income taxation literature whose numerical calculations have established the presumption that optimal marginal tax rates should decline with income have the existing results of optimal income tax literature therefore established a presumption that the observed pattern is suboptimal the object of this paper is to attempt to answer this question the numerical calculations that followed mirrlees s 1971 pioneering contribution tried many variations on his basic parametrisation including different preference structures and different functional forms however so far as we are aware most of the reported results maintain his basic assumption of a log normal distribution of abilities or wages with a standard deviation of logs of 0 39 mirrlees 1971 himself appealed the work of lydall 1969 for this figure but it has become the industry standard we show in this paper that departures from this assumption in particular increases in inherent inequality can alter the qualitative pattern of optimal marginal tax rates dramatically contrary to the currently available calculations we show that the optimal graduation can indeed be such that marginal tax rates increase for the majority of the population which is consistent with the observed pattern but that there continues to exist a significant income range at the top where marginal tax rates decline which of course is counter to the observed pattern

social comparison and performance experimental evidence on the fair wage effort hypothesis we investigate the impact of wage comparisons for worker productivity we present three studies which all use three person gift exchange experiments consistent with akerlof and yellen s 1990 fair wage effort hypothesis we find that disadvantageous wage discrimination leads to lower efforts while advantageous wage discrimination does not increase efforts on average two studies allow us to measure wage comparison effects at the individual level we observe strongly heterogeneous wage comparison effects we also find that reactions to wage discrimination can be attributed to the underlying intentions of discrimination rather than to payoff consequences

income redistribution going awry the reversal power of the concern for relative deprivation abstract we demonstrate that a rank preserving transfer from a richer individual to a poorer individual can exacerbate income inequality when inequality is measured by the gini coefficient this happens when individuals preferences depend negatively not only on work time effort but also on low relative income it is rigorously shown that the set of preference profiles that gives rise to this perverse effect of a transfer on inequality is a non empty open subset of all preference profiles a robust example illustrates this result

relative consumption of housing marginal saving subsidies and income taxes as a second best policy this paper analyzes whether marginal taxation of labor and capital income are useful second best instruments for internalizing the externalities caused by conspicuous housing consumption when the

who compares to whom the anatomy of income comparisons in europe this article provides unprecedented direct evidence from large scale survey data on both the intensity how much and direction to whom of income comparisons income comparisons are considered to be at least somewhat important by three quarters of europeans they are associated with both lower levels of subjective well being and a greater demand for income redistribution the rich compare less and are happier than average when they do which latter is consistent with relative income theory with respect to the direction of comparisons colleagues are the most frequently cited reference group those who compare to colleagues are happier than those who compare to other benchmarks

relative concerns for consumption at the top an intertemporal analysis for the uk abstract this paper investigates whether the consumption of rich households provides a reference point in the intertemporal consumption choices of non rich households using uk household data on food consumption we estimate the euler equation implied by a life cycle model incorporating relative concerns for the consumption of rich households according to both our ols and gmm estimates for the population of non rich households as a whole there is no evidence of such relative concerns we also examine an alternative model of relative concerns in which households overconsume when exposed to higher reference group consumption and find correlational evidence that this may be the case for food consumed away from home finally we investigate the presence of heterogeneous relative concerns across county and household characteristics in both models finding evidence of relative concerns for consumption at the top in counties with relatively low income inequality this mechanism seems to operate for food consumed away from home

genuine saving and positional externalities much evidence suggests that people are concerned with their relative consumption yet positional externalities have so far been ignored in savings based indicators of sustainable development this

conspicuous leisure optimal income taxation when both relative consumption and relative leisure matter previous studies on public policy under relative consumption concerns have ignored the role of leisure comparisons this paper considers a two type optimal nonlinear income tax model where people care both about their relative consumption and their relative leisure increased consumption positionality typically implies higher marginal income tax rates for both the high ability and the low ability type whereas leisure positionality has an offsetting role however this offsetting role is not symmetric concern about relative leisure implies a progressive income tax component i e a component that is larger for the high ability than for the low ability type moreover leisure positionality does not modify the policy rule for public good provision when the income tax is optimally chosen

reign in hell or serve in heaven a cross country journey into the relative vs absolute perceptions of wellbeing abstract questionnaires exploring the relativist vs absolutist perception of wellbeing are administered to 3883 students in eight different countries four low income countries bolivia brazil kenya and laos 1924 respondents and four high income countries italy sweden switzerland and the uk 1959 respondents our data reveal that wellbeing is perceived mainly in relative terms with the strength of relativism being higher for respondents in high income countries however when the satisfaction of some basic needs is at stake the absolutist concern becomes powerful personal characteristics such as gender and background of studies have a significant role in determining respondents perception of wellbeing finally additional insights emerge from our study interpersonal comparisons take place by looking both upward and downward along the income scale not only income ranking but also the magnitude of reference incomes plays a role and the perception of wellbeing is more elastic to absolute rather than relative income

domestic tourism demand of urban and rural residents in china does relative income matter abstract the aim of this research is to investigate the domestic tourism demand of urban and rural residents in china based on the data from the national household tourism survey we specify chinese domestic tourism demand as a function of absolute income relative income domestic tourism price and substitute price as a major contribution of this study relative income is measured using the distance between individual income and average income over a city province based on the estimation results from multilevel models this paper highlights the effect of relative income on domestic tourism demand in some sub regions of china furthermore regional differences between residents in different sub regions and different patterns of determinants between urban and rural residents are identified and discussed