Title: Inequality aversion, macroeconomic objectives and the marginal welfare cost of indirect taxation Does flexibility of prices and wages matter?
Authors: Van De gaer, D ×
Schokkaert, Erik
De Bruyne, Guido #
Issue Date: 1997
Series Title: European Journal of Political Economy pages:315-341
Abstract: We compare directions of welfare improving marginal tax reform in a situation of involuntary unemployment. We show the role of distributional considerations in assessing these welfare effects: preferences between macroeconomic variables shift with the degree of inequality aversion. To get a better insight into the importance of distributional considerations in different models, we compare the marginal welfare costs of taxation within three different specifications: the Keynesian regime, a flexible prices/fixed wage-model, and a flexible prices/trade union wage-model. These various models are calibrated for Belgian data of 1980. It turns out that the choice of model matters, even in a marginal perspective. The empirical results also show how the welfare costs in the different models vary with the degree of inequality aversion.
Publication status: published
KU Leuven publication type: IT
Appears in Collections:Research Center of Public Economics, Leuven
× corresponding author
# (joint) last author

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