Working Paper: NBER ID: w10005
Authors: Louis Kaplow
Abstract: The marginal social value of income redistribution is understood to depend on both the concavity of individuals' utility functions and the concavity of the social welfare function. In the pertinent literatures, notably on optimal income taxation and on normative inequality measurement, it seems to be accepted that the role of these two sources of concavity is symmetric with regard to the social concern about inequality in the distribution of income. Direct examination of the question, however, reveals that this is not the case. Concavity of utility has a simple, direct effect on the marginal social value of redistribution, as might be expected, whereas concavity of the social welfare function has a more subtle influence, one that in some cases may not be very significant. The implications of this difference are examined for some standard forms of utility and welfare functions, including particular versions that appear in the optimal income taxation literature.
Keywords: No keywords provided
JEL Codes: D31; D63; H21; H23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| concavity of utility functions (D11) | marginal social value of income redistribution (D63) |
| concavity of social welfare function (D69) | overall social preference for redistribution (D63) |
| concavity of utility functions + concavity of social welfare function (D71) | overall social preference for income redistribution (D63) |