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Welfare Policies, Relative Income and Majority Choice
Author(s) -
FitzRoy Felix,
Nolan Michael
Publication year - 2016
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/manc.12083
Subject(s) - economics , subsidy , welfare , redistribution (election) , wage , redistribution of income and wealth , majority rule , pairwise comparison , labour economics , distribution (mathematics) , productivity , income distribution , voting , microeconomics , politics , unemployment , macroeconomics , inequality , mathematical analysis , statistics , mathematics , artificial intelligence , political science , computer science , law , market economy
In a model with heterogeneous workers, quasi‐linear utility and both intensive and extensive margins of employment, we investigate welfare with optimal linear taxes and wage subsidies under R awlsian and utilitarian objectives, and the effects of concern for relative income. Relativity implies much higher optimal utilitarian taxes, but makes little difference to already very high optimal R awlsian taxes. A substantial wage subsidy is generally optimal. We also consider the political economy of pairwise majority voting preferences for differing policies. R awlsian redistribution is always defeated, though often by only a modest majority, while a constrained utilitarian policy, with equal transfers to unemployed and employed individuals—a universal basic income—wins a majority in all cases, which is robust to changes in the underlying productivity distribution.