Are Two Tax Rates Better than One?

Should two-band income taxes be progressive given a general income distribution? We provide a negative answer under utilitarian and max-min welfare functions. While this result clarifies some ambiguities in the literature, it does not rule out progressive taxes in general. If we maximize total or weighted utility of the poor, as often intended by the society, progressive taxes can be justified, especially when the 'rich' are very rich. Under these objectives we obtain necessary conditions for progressive taxes, which only depend on aggregate features of income distributions. The validity of these conditions is examined using plausible income distributions.progressive tax, utilitarian, max-min, help the poor

Efficient Redistribution: Comparing Basic Income with Unemployment Benefits

We compare two systems of income redistribution: unemployment benefits (UB) and basic income (BI). First, for a simple utility function, with both intensive and extensive margins, the unemployed are likely better off with pure BI than pure UB, regardless of labour supply elasticity and wage distribution. Then we allow a general utility function and ignore intensive margins. For given unemployment, lowering UB and raising BI always benefits the unemployed, raises utilitarian welfare and benefits a poor majority. Reducing unemployment and UB simultaneously can benefit a majority of the employed as well as all unemployed, again for any wage distribution.income distribution, basic income, unemployment benefits

Relative Income, Redistribution and Well-being

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.relative income, redistribution, basic income, unemployment benefits, happiness, well-being

Commuting in small towns in rural areas: the case of St Andrews.

Since many rural commuters depend on the private car due to lack of convenient public transport, car reduction policies designed for large cities with ample public transport may be unsuitable for smaller towns. In particular, pricing policies designed to encourage public transport use may be less effective, as commuters with no convenient substitute to driving will be unable to switch. This paper develops multinomial and mixed logit models of commuters’ mode choice using data from a survey of commuters in the University of St Andrews. We find that the direct elasticities of the car mode are comparable to estimates reported in studies of commuting in larger urban areas, while the demand for public transport is considerably more elastic. The value of in-vehicle time is found to be about half of the UK average, reflecting that the roads in the St Andrews area are relatively uncongested.Mode choice, Rural commuting, Discrete choice models

Age, Life-Satisfaction, and Relative Income: Insights from the UK and Germany

We first confirm previous results with the German Socio-Economic Panel by Layard et al. (2010), and obtain strong negative effects of comparison income. However, when we split the sample by age, we find quite different results for reference income. The effects on life-satisfaction are positive and significant for those under 45, consistent with Hirschman's (1973) 'tunnel effect', and only negative (and larger than in the full sample) for those over 45, when relative deprivation dominates. Thus for young respondents, reference income's signalling role, indicating potential future prospects, can outweigh relative deprivation effects. Own-income effects are also larger for the older sample, and of greater magnitude than the comparison income effect. In East Germany the reference income effects are insignificant for all. With data from the British Household Panel Survey, we confirm standard results when encompassing all ages, but reference income loses significance in both age groups, and most surprisingly, even own income becomes insignificant for those over 45, while education has significant negative effects.subjective life-satisfaction, comparison income, reference groups, age, welfare

Age, life-satisfaction, and relative income

We first confirm previous results with the German Socio-economic Panel, and obtain strong negative effects of comparison income. However, when we split the sample by age, we find quite different results for reference income. The effects on life-satisfaction are positive and significant for those under 46, consistent with Hirschman's (1973) tunnel effect and only negative (and larger than in the full sample) for those over 46, when relative deprivation dominates. Thus for young respondents, reference income's signalling role, indicating potential future prospects, can outweigh relative deprivation effects. Own-income effects are also larger for the older sample, and of greater magnitude than the comparison income effect. In East Germany the reference income effects are insignificant for all age groups. --

Lower tax for minimum wage earners

We show that minimum wage earners should pay a lower tax than high earners. Though intuitive, this idea is not supported by the existing literature. The optimal maximin tax curve and two-band taxes are usually decreasing. Since decreasing marginal taxes would be unpopular, by continuity a flat tax seems to be superior to increasing marginal taxes and should be a second best solution. However, using a simple utility function and a general income distribution, we find that lowering the marginal tax for minimum wage earners not only dominates the optimal flat tax under maximin, but also make everyone better off.Publisher PD

Tax reform and redistribution for a better recovery

A regressive tax system and welfare cuts under ideological austerity have generated growing poverty and inequality in the UK and US. Failures in responding to the Covid-19 pandemic and the resulting deep recession have the greatest impact on the poorest and most vulnerable, exacerbating poverty and inequality. In contrast to this depressing history, we show in detail that a better recovery in the UK requires a radical tax reform and a universal basic income, combined with a green new deal for full employment and a low-carbon economy, employee self-determination and economic democracy to eliminate exploitation and establish social justice.PostprintPeer reviewe