Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/271886 
Year of Publication: 
2023
Series/Report no.: 
CESifo Working Paper No. 10242
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We characterize a measure of social welfare for linear production economies in which individuals differ in productive skills and preferences. The key feature of our measure is that it aggregates fairness gaps, defined as the difference between the money-metric utility that the individual currently obtains and the money-metric utility that the individual should obtain in a fair society. Social welfare depends on two normative parameters: society's aversion to unfairness and the degree to which society wants to compensate individuals for productivity differences. The latter parameter makes it possible to accommodate a whole range of ethical perspectives, from libertarianism to resource-egalitarianism. As an illustration, we use our social welfare measure to evaluate four hypothetical earnings tax reforms for Belgian singles. The degree of compensation for productivity differences turns out to be the most important normative choice for the overall evaluation, while allowing for involuntary unemployment is the most important empirical choice.
Subjects: 
fairness
money-metric utility
excess burden
unfair inequality
earnings tax reforms
involuntary unemployment
JEL: 
D30
D60
D70
H20
I30
J20
Document Type: 
Working Paper
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