Should We Use Distributional Weights in CBA When Income Taxes Can Deal with Equity?

Kaplow (1996) and others argue forcefully in favor of using the standard cost-benefit test alone, without any distributional concern, given “standard simplifying assumptions.” This paper, on the contrary, demonstrates that distributional weights, equal to the social marginal utility of income, should be applied in cost-benefit analysis, given weak separability in public goods instead of in leisure. This result holds for linear as well as non-linear income taxes, and whether they are optimal or not. A correspondingly modified Samuelson rule is derived and more general policy recommendations discussed.public goods; distributional weights; equity and efficiency; separability; cost-benefit; optimal taxation

Environmental Policy when People's Preferences are Inconsistent, Non-Welfaristic, or simply Not Developed

This paper discusses how a benevolent policy maker should act based on some, possibly non-welfaristic,ethical principle in cases where people's preferences are not perfectly informed,consistent and fully developed with regard to all goods, including all kinds of environmental goods, as is normally assumed in mainstream economic theory. When stated or revealed preferences do not reflect the maximization of individual welfare, it is argued that welfare,rather than preferences, has intrinsic value. However, it is also argued that properly designed stated preference methods may provide useful information about people’s views about alternative ethical ends, besides human well-being, and that policy makers should take such views seriously.ethics; environmental policy; environmental valuation; cost-benefit analysis; endogenous preferences; preference construction; irrationality; bounded rationality; cognitive dissonance; anthropocentrism

Estimating individual driving distance by car and public transport use in Sweden

How much to drive, and how much to use public transport, are modelled as three- and two level decisions, respectively, based on micro-data for Sweden. The choices whether to have a car, whether to drive given access to a car, and how much to drive given that the individual drives at all are then estimated using a three equation model. Also after correcting for other variables, such as income, men are driving much more, and using less public transport, compared to women. People living in big cities are less likely to drive, but those who do are on average driving about as much as others. Age and access to company-cars are also important determinants for travel behaviour, but being a member of an environmental organisation is not. Driving increases with income, but to a lower degree compared to most aggregated studies on national level. The difference is explained in a simple model with income-dependent structural changes, implying that it becomes more difficult to live without a car when average income increases. This indirect effect is found to be of a similar size as the ordinary income elasticity typically found in cross-section analysis within a country or region.Transport demand; car ownership; car use; driving; public transport demand; multi-level decisions; social context; gender and transport

Process Innovations in a Duopoly with Two Regions

We extend previous models of duopolies by introducing regions. This analysis highlights how incentives to conduct process R&D are affected by increasing regional distance, and the effect that agglomeration (in terms of population) has on two firms producing a high- and low-quality good respectively. We find that, under reasonable assumptions, an increase in transport costs (regional distance), raises the incentive to conduct process R&D for the high-quality good, while the reverse is true for the low-quality good. Transport costs generally lower production. We interpret this result to arise because the high quality good can more easily regain (some) market output, due to its high quality, which gives an impetus for process R&D. The second result is that an increase in agglomeration in the high-quality region, lowers the incentive to conduct process R&D for the high-quality good, while the opposite is true for the low-quality good. This seems consistent with a view of spatial product life-cycles where process R&D is increasingly moved to 'peripheral' regions as agglomerative tendencies continue in high-quality output regions.

Virtues of SIN - effects of an immigrant workplace introduction program

We evaluate an immigrant workplace introduction program aimed at helping individuals considered employable but at the same time expected to experience substantial difficulties in finding work. Using supported employment methods, the SIN program may influence outcomes through several channels. We use in-dividual data and a difference-in-differences approach to estimate the effects of the program. The results suggest that the program increased transitions from unemployment to work experience schemes, and improved future employment probabilities for those who entered these schemes.Unemployment; labor market programs; immigrants

State-Variable Public Goods When Relative Consumption Matters: A Dynamic Optimal Taxation Approach

This paper concerns the optimal provision of a state-variable public good, where the global climate is the prime example. The analysis is based on a two-type optimal income tax model with overlapping generations, where people care about their relative consumption. We consider both keeping-up-with-the-Joneses preferences (where people compare their own current consumption with others’ current consumption) and catching-up-with-the-Joneses preferences (where people compare their own current consumption with others’ past consumption). The extent to which the rule for public provision ought to be modified is shown to depend crucially on the preference elicitation format.State variable public goods; asymmetric information; relative consumption; status; positional preferences; climate policy

Mobile unemployment in a post-industrial society: The case of Sweden

Since the early 90s, every region in Sweden has been struck by high unemployment, especially among young persons. In the same period, there has been an overrepresentation of unemployed among inter-regional migrants. Increasingly, however, this mobility does not lead to employment. Yet, there are largely economic factors explaining this mobility. There seems to be a dual spatial pattern of this phenomenon. Preferably, unemployed migrate to (a) metropolitan regions and to (b) rural areas. This indicates that the phenomenon is multifaceted. Mobile unemployed have different backgrounds and different aspirations. Unemployed migrants to rural areas are predominantly low cost seekers who do not look for a regular job any longer. Unemployed migrants to metropolitan regions are to a large extent recent immigrants and/or young persons attracted by the informal segments of the urban labor market. The aim of the paper is to describe emerging patterns of inter-regional migration of unemployed, to analyze the socio-economic careers of different migrant groups, and to analyze factors leading to mobile unemployment. The factors analyzed include changes in the welfare system and in labor market policy. Finally, the paper will discuss the regional economic consequences of the emerging pattern and the policy implications.

Positional Concerns with Multiple Reference Points: Optimal Income Taxation and Public Goods in an OLG Model

This paper concerns optimal income taxation and provision of a state-variable public good under asymmetric information in a two-type overlapping generations model, where people care about their relative consumption. Each individual may compare his/her own current consumption with his/her own past consumption as well as with other people’s current and past consumption. The appearance of positional concerns affects the policy choices via two channels: (i) the size of the average degree of positionality and (ii) positionality differences between the (mimicked) low-ability type and the mimicker. Under plausible empirical estimates, the marginal labor income tax rates become substantially larger, and the absolute value of the marginal capital income tax rate of the low-ability type becomes substantially smaller, compared to the conventional optimal income tax model. The extent by which the rule for public provision should be modified depends crucially on the preference elicitation format.Optimal income taxation; asymmetric information; public goods; relative consumption; status; positional goods

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.Optimal taxation; redistribution; public goods; relative consumption; status; positional goods

Veblen’s Theory of the Leisure Class Revisited: Implications for Optimal Income Taxation

Almost all previous studies on public policy under relative consumption concerns have ignored the role of leisure for status comparisons. Inspired by Veblen (1899), this paper considers a two-type optimal income tax model, where people care about their relative consumption, and where the importance of relative consumption increases with the use of leisure due to increased consumption visibility. We show that increased consumption positionality typically implies higher marginal income tax rates for both ability-types. Using a leisure-weighted measure of reference consumption, rather than a measure where leisure plays no role as in the previous literature, increases the marginal income tax rate implemented for the low-ability type and decreases the marginal income tax rate implemented for the high-ability type, i.e., it gives rise to a regressive tax component.optimal taxation; redistribution; public goods; relative consumption; status; positional goods