Welfare policies, relative income and majority choice: Welfare policies, relative income and majority choice

FitzRoy, Felix; Nolan, Michael

Abstract

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 Rawlsian 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 Rawlsian taxes. A substantial wage subsidy is generally optimal. We also consider the political economy of pairwise majority voting preferences for differing policies. Rawlsian 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.

Citation

FitzRoy, F., & Nolan, M. (2016). Welfare policies, relative income and majority choice: Welfare policies, relative income and majority choice. The Manchester school, 84(1), 81-94. https://doi.org/10.1111/manc.12083

• Journal Article Type: Article
• Acceptance Date: Jun 27, 2014
• Online Publication Date: Nov 3, 2014
• Publication Date: Jan 1, 2016
• Deposit Date: Dec 13, 2018
• Journal: The Manchester School
• Print ISSN: 1463-6786
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 84
• Issue: 1
• Pages: 81-94
• DOI: https://doi.org/10.1111/manc.12083
• Public URL: https://hull-repository.worktribe.com/output/1152476
• Publisher URL: https://onlinelibrary.wiley.com/doi/full/10.1111/manc.12083