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Mobility, taxation and welfare

Author

Listed:
  • Sami Bibi
  • Jean-Yves Duclos
  • Abdelkrim Araar
Abstract
Income mobility is often thought to equalize permanent incomes and thereby to improve social welfare. The welfare analysis of mobility often fails, however, to account for the cost of the variability of periodic incomes around permanent incomes. This paper assesses the net welfare benefit of mobility by assuming both an aversion to inequality in permanent incomes and an aversion to variability in periodic incomes. The paper further investigates the combined (and comparative) impact of mobility and the tax system (another presumed income equalizer) on the dynamics of income across time and on the inequality of income across individuals. Using panel data, we find that Canada’s tax system limits significantly the redistributive impact of mobility while also lowering considerably the cost of income variability. The permanent income equalizing effect of taxes can reach up to 23 % of mean income at the higher values of inequality aversion that we use. Globally, the net social welfare effect of both mobility and taxation is (almost always) positive and substantial, often amounting to around 30 % of mean income. For all choices of parameter values, the tax effect exceeds substantially the net effect of mobility on inequality and social welfare. Copyright Springer-Verlag Berlin Heidelberg 2014

Suggested Citation

  • Sami Bibi & Jean-Yves Duclos & Abdelkrim Araar, 2014. "Mobility, taxation and welfare," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 42(3), pages 503-527, March.
    • Handle: RePEc:spr:sochwe:v:42:y:2014:i:3:p:503-527
    DOI: 10.1007/s00355-013-0749-8
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    References listed on IDEAS

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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Mobility, Taxation and Welfare
      by maximorossi in NEP-LTV blog on 2011-06-29 20:27:32

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    1. B. Cecilia Garcia-Medina & Jean-François Wen, 2018. "Income instability and fiscal progression," Canadian Journal of Economics, Canadian Economics Association, vol. 51(2), pages 419-451, May.
    2. Antonio Abatemarco, 2017. "Evaluating Economic Mobility under Opportunity Egalitarianism," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(12), pages 260-277, December.
    3. Florent Bresson & Jean-Yves Duclos & Flaviana Palmisano, 2019. "Intertemporal pro-poorness," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 52(1), pages 65-96, January.

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    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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