Thor O. Thoresen - Evaluation of welfare effect of tax reform by compensating variation consistent with fairness

• Presenting author: Thor O. Thoresen (Statistics Norway)

• Authors: Laurence Jacquet, Zhiyang Jia and Thor O. Thoresen

• Session: B02B - Public Choice [1] - Tuesday 11:00-12:30 - Marietta-Blau Hall

• Slides: PDF

Increased attention is devoted to unfair and fair inequalities in social choice theory, as in M. Fleurbaey and F. Maniquet (2011), A Theory of Fairness and Social Welfare. We demonstrate how the distributional effects of a tax reform can be described when drawing inspiration from the fair allocation literature’s distinction between individual responsibilities (preferences) and exogeneous constraints (circumstances). Empirical evidence is obtained by engaging a labor supply model that facilitates controlling for variations preferences and circumstances. The model is used to neutralize individual differences in preferences, separating out tax reform distributional welfare effects belonging to “fairness”. The empirical content of the framework is explained by discussing distributional effects of the Norwegian tax reform 2013–2019 by the distribution of compensating variation (CV).