Bart Capéau

On comparing heterogeneous populations: Is there really a conflict between welfarism and a concern for greater equality in living standards?

Abstract The standard solution in classical welfare analysis to deal with non-pecuniary characteristics relevant for a normative judgement of income distributions, such as household composition or handicaps, is to adjust first household income via equivalence scales. The resulting equivalent income is then assigned to each household member. Finally, a social evaluation tool is applied to the resulting distribution of individual equivalent incomes (as if all individuals were homogeneous). However, the welfarist approach of the final step risks to be at odds with a concern for greater equality in equivalent incomes (see [Ebert, U., 1997. Social welfare when needs differ: an axiomatic approach. Economica 64, 233–244; Ebert, U., Moyes, P., 2003. Equivalence scales reconsidered. Econometrica 71, 319–343; Shorrocks, A.F., 2004. Inequality and welfare evaluation of heterogeneous income distributions. Journal of Economic Inequality 2, 193–218]). We pinpoint two families of welfarist rankings and show how and why these rules can resolve the tension between the between type Pigou–Dalton transfer principle, a notion of concern for greater equality, and the Pareto indifference criterion, the quintessence of welfarism. We then characterize these families of welfare rankings. This completes the fragmentary picture in the literature of welfarist rankings which can reconcile both principles, limited basically to the maximin and leximin rule.

Welfare effects of alternative financing of social security. Some calculations for Belgium

We analyse the distributional impact of lowering social security contributions and compensating the revenue loss by an increase in indirect taxes. We empirically assess the distributional consequences of this shift by using two Belgian microsimulation models: MODETE for the tax benefit system, and aster for the indirect tax part. Since the underlying micro database of the tax benefit system does not contain expenditures, we first impute detailed expenditures in the income data survey, by means of semiparametric Engelcurves. The currently living generation of pensioners belongs to the losers by such a reform: They do not profit from the reduced tax on labour income, but pay higher consumption prices. Less obvious, also part of the working population loses. Even not all those who leave unemployment after the reform are gainers. We also investigate the sensitivity of the results w.r.t. the choice of welfare measure to assess the combined change in disposable income, consumer prices and - in the case of flexible labour supply - leisure. We show how the specific choice and parameters of the welfare measure will influence the conclusions, possibly even more than the predictive model for assessing the behavioural reactions in labour supply.

Getting Tired of Work, or Re-Tiring in Absence of Decent Job Opportunities? Some Insights from an Estimated Random Utility/Random Opportunity Model on Belgian Data.

This paper exploits the distinction between preference and opportunity factors in a Random Utility and Random Opportunity (RURO) model of job choice (Aaberge, Dagsvik and StrA¸m, 1995, and Aaberge, Colombino and StrA¸m, 1999). We estimate the model on Belgian data (SILC 2007). To investigate to what extent lower labour market participation of elderly is due to changing preferences (executing a job might become less enjoyable with age) or to differences in opportunities (elderly getting less, or less attractive job offers), we use the estimated model to simulate two counterfactuals. In the first, we remove partly the age heterogeneity in opportunities, in the second we remove age heterogeneity in preferences. A comparison of labour market behaviour in these two counterfactuals with the baseline shows that opportunities which decline with age are at least as an important factor in explaining low participation rates for the elderly, as is increasing preference for leisure. The effect of opportunities seems to work primarily through the extensive margin, whereas the effect of preferences is more outspoken in the intensive than in the extensive margin.