The Role of The Unit of Analysisin Tax Policy Return Evaluations of Inequality and Social Welfare
ABSTRACT This paper examines the implications, for overall social welfare and inequality comparisons, of using different definitions of the unit of analysis in computing summary measures. The units considered are households, individuals and adult equivalent persons. Comparisons are made of the effects of flattening the marginal tax rate structure using the Melbourne Institute Tax and Transfer Simulator (MITTS), a simulation model of the Australian direct tax and benefit system. The reform was found to reduce inequality, no matter which unit of analysis was chosen. However, it was not always judged to improve social welfare, depending on the degree of inequality aversion and the unit of analysis chosen.
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ABSTRACT: This article uses data from the Household, Income and Labour Dynamics in Australia (HILDA) Survey to examine the changing distribution of net worth with age. Even after controlling for age, the relationship between income and net worth is positive, except for the older age groups. Inequality falls as age increases. The income poor save in different forms compared with high income individuals of the same age cohort. Holdings of financial assets, especially equity investments and superannuation, are heavily concentrated in the hands of high income earners, while fixed income investments are favoured by the elderly for all income groups. Copyright 2007 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research.Australian Economic Review 01/2007; 40(2):165-181. · 0.27 Impact Factor
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ABSTRACT: This paper provides an analytical review of the evaluation of alternative time streams of consumption and the closely related concept of time preference. The potential sensitivity of comparisons, especially to the choice of time preference rate and elasticity of marginal valuation, is demonstrated. The nature of time preference, based on an axiomatic approach, is then discussed. The analysis of optimisation over time leads to the concept of the social time preference rate, and a difficulty with using this rate is highlighted. Approaches giving rise to declining discount rates over time are discussed, including alternative welfare functions and the role of uncertainty. This is followed by a critique of methods used to 'estimate' a time preference rate. Finally, complications introduced by non-income differences between individuals are examined. Emphasis is placed on the central role of value judgements. Copyright © 2008 The Economic Society of Australia.Economic Record 01/2008; 84(264):109-127. · 0.38 Impact Factor
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ABSTRACT: This paper is concerned with the use of social welfare functions in evaluating changes. In particular, it considers suggestions that welfare weights to be used in comparing the gains and losses of different individuals (or other appropriate units of analysis), and a social time preference rate for use in cost benefit evaluation, can be estimated either from consumers' behaviour or from the judgements implicit in tax policy. It is suggested that results are highly sensitive to the context and model specification assumed. More importantly, the argument that an estimated elasticity of marginal utility or time preference rate should be used in policy evaluations fails to recognise that fundamental value judgements are involved. Various estimates may be of interest, but they cannot be used by economists to impose value judgements. The main contribution economists can make is to examine the implications of adopting a range of alternative value judgements.Australian Journal of Labour Economics (AJLE). 01/2007; 10(1):1-15.