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

FitzRoy, Felix; Nolan, Michael

Authors

Felix FitzRoy

Dr Michael Nolan M.A.Nolan@hull.ac.uk
Senior Lecturer in Economics and Programme Director, BSc Economics (Certificate and Diploma Stages) and BSc(Econ) Economics (Honours Stage)



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.

Journal Article Type Article
Publication Date Jan 1, 2016
Journal The Manchester School
Print ISSN 1463-6786
Electronic ISSN 1467-9957
Publisher Wiley
Peer Reviewed Peer Reviewed
Volume 84
Issue 1
Pages 81-94
APA6 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. doi:10.1111/manc.12083
DOI https://doi.org/10.1111/manc.12083
Publisher URL https://onlinelibrary.wiley.com/doi/full/10.1111/manc.12083
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