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Journal Article

Tax-Benefit Revealed Social Preferences in Europe and the US

Olivier Bargain, Mathias Dolls, Dirk Neumann, Andreas Peichl and Sebastian Siegloch
Annals of Economics and Statistics
No. 113/114, SPECIAL ISSUE ON THE ECONOMICS OF TAXATION (June 2014), pp. 257-289
Published by: GENES on behalf of ADRES
DOI: 10.15609/annaeconstat2009.113-114.257
Stable URL: http://www.jstor.org/stable/10.15609/annaeconstat2009.113-114.257
Page Count: 33
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Tax-Benefit Revealed Social Preferences in Europe and the US
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Abstract

We follow the inverted optimal tax approach to characterize and compare “tax-benefit revealed” social preferences in 17 EU countries and the US. Following Bargain et al. [2013], we invert the optimal income taxation model on the distributions of net and gross incomes and use labor supply elasticities consistently estimated on the same data. The present paper focuses on new outputs of particular interest for the current policy debate on in-work versus traditional social transfers. Results are as follows: We find that revealed marginal social welfare functions verify minimal consistency checks and, notably, respect Paretianity overall. An exception is due to the treatment of the working poor in countries with standard, demogrant transfers. We illustrate for some countries how the recent policy trend in Continental and Nordic Europe tends to correct this “anomaly” through redistributive reforms in favor of the working poor. Finally, we compare revealed and stated social preferences using direct survey information and suggest explanations for the apparent discrepancies. JEL: H11, H21, D63, C63. / KEY WORDS: Social Preferences, Redistribution, Optimal Income Taxation, Labor Supply.

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