Welfare Gain Research Articles

Tax progressivity and social welfare with a continuum of inequality views

We develop a framework for analysing the loss of social welfare due to taxation, where tax progressivity and regressivity, measured by the Kakwani index, are given interpretation in terms of welfare gain and loss, respectively. Our framework generalises the framework of Kakwani and Son (J Econ Inequal 19:185–212, 2021), by taking account of the intermediate inequality views, a continuum of combinations of the relative view (equal relative change of all incomes does not change inequality) and the absolute view (equal absolute change of all incomes does not change inequality). The welfare loss of taxation is decomposed into three components, one being a generalised Kakwani index, which accommodates the intermediate inequality views. We show that for a progressive (regressive) tax, moving closer to the relative view reduces (increases) the importance of progressivity (regressivity) for the welfare impact of the tax. The perception of the importance of progressivity and regressivity is thus affected by the inequality view taken. The empirical application considers the welfare loss of taxation in Croatia.

The global temperature-related mortality impact of earlier decarbonization for the Australian health sector and economy: A modelling study.

BackgroundSustained elevated concentration of GHGs is predicted to increase global mortality. With the Australian health sector responsible for 7% of the nation’s GHG emissions, the benefits and costs of various decarbonisation trajectories are currently being investigated. To assist with this effort, we model the impact earlier decarbonisation has on temperature-related mortality.DesignWe used DICE-EMR, an Integrated Assessment Model with an endogenous mortality response, to simulate Australian GHG trajectories and estimate the temperature-related mortality impact of early decarbonisation. We modelled a linear decline of the Australian health sector’s and economy’s GHG annual emissions to net-zero targets of 2040 and 2050.Main outcome measureDeaths averted and monetary-equivalent welfare gain.ResultsDecarbonisation of the Australian health sector by 2050 and 2040 is projected to avert an estimated 69,000 and 77,000 global temperature-related deaths respectively in a Baseline global emissions scenario. Australian economy decarbonisation by 2050 and 2040 is projected to avert an estimated 988,000 and 1,101,000 global deaths respectively. Assuming a low discount rate and high global emissions trajectory, we estimate a monetary equivalent welfare gain of $151 billion if the Australian health sector decarbonises by 2040, only accounting for the benefits in reducing temperature-related mortality.ConclusionsEarlier decarbonisation has a significant impact on temperature-related mortality. Many uncertainties exist and health impacts other than temperature-related mortality are not captured by this analysis. Nevertheless, such models can help communicate the health risk of climate change and improve climate policy decision making.

On the welfare cost of business cycles: The role of labor-market heterogeneity

Are business cycles equally beneficial or harmful to consumers? Has welfare inequality increased or decreased due to rise of income/wealth inequality? By utilizing a heterogeneous agent RBC model with endogenous labor supply, this paper aims to answer these questions. We first show that while technology-driven business cycles are beneficial on average, a finding that is consistent with the recent literature, the welfare gain is not equally distributed; it is beneficial (resp. harmful) for agents who are relatively rich (resp. poor). The key to understanding the monotonic relationship between welfare gain from the business cycles and wealth level, a finding different from the previous literature that argues that there is a non-monotonic relationship between the two, is shown to be endogenous labor supply. Finally, we analyze the short run consequence of rising income/wealth inequality on welfare cost.

CAFE in the city — A spatial analysis of fuel economy standards

We identify and examine a new effect of fuel economy (CAFE) standards on welfare through a long-run spatial expansion of the urban form (“urban adjustment effect”) caused by lower per-mile driving costs and the distortion in the vehicle market due to CAFE standards. By integrating household-level vehicle choice and the automobile market into a calibrated monocentric city model, we find that, for a carbon emission decrease of 80 percent, the long-run urban adjustment effect adds a relevant monthly welfare cost of up to 20 Dollars to the medium-run welfare cost of CAFE compliance of 128 Dollars per month (+15 percent). This welfare cost can be alleviated by about one third through the combination of CAFE with urban growth boundaries. For fuel taxes, on the other hand, the urban adjustment effect causes a welfare gain of a similar magnitude.

The impact of macroprudential policies on the transmission of shocks across financially integrated countries

AbstractWe study the implications of macroprudential policies across countries on the transmission of shocks when international investment activities are allowed. In a two‐country dynamic stochastic general equilibrium (DSGE) model in which international investors are borrowing constrained and pledge international assets, we introduce a time‐varying loan‐to‐value (LTV) ratio that adjusts to the variation of three different financial vulnerability indicators. We examine the effect of these policies on negative productivity and borrowing capacity shocks. Although time‐varying LTV ratios reduce the international propagation of the productivity shock, their response to the shock depends on the financial vulnerability indicator with which the LTV ratio changes. With a productivity shock, the adjustment of the LTV ratio to the deviation of credit or asset price helps to reverse the negative impact of the shock. With a financial shock, LTV ratios varying with a deviation of credit‐to‐GDP ratio or aggregate credit can mitigate the impact of a negative financial shock. Adjustment of the LTV ratios reduces the fluctuation of international investors' balance sheets, investment, and productivity. We find that countries improve their welfare when time‐varying LTV ratios are in place. The magnitude of the welfare gain differs with both the financial vulnerability indicator and the shock.

Welfare Impact of Dust Pollution on Human Health in the District Khyber Ex-FATA, Pakistan

Dust pollution is among the major cause of disease and death all around the world. The lungs and respiratory system are the primary targets of ambient dust pollution. This study aims to estimate the health cost due to dust pollution from a stone crushing industry in the Khyber district of ex-fata, Pakistan. To examine the impact of dust pollution on respiratory illness, primary data was collected from 1278 individuals from 200 households living within a 3 km radius of the stone crushing industry. The Household Production Function and Mitigation Cost Function were used to determine the reduced-form equations for assessing the impact of dust pollution on human health and then estimating the monetary cost related to mitigating such diseases. The PM10 level in the crushing region was extremely high, averaging 1247g/m3, while the PM10 level in the control group was relatively low, at 45g/m3. According to our study, the regression analysis estimated that by reducing PM10 to a safe level, every individual could save PKR 4958 per year through mitigation costs. The Total welfare gain for district Khyber will be PKR 2453.306 million or (PKR 2.45 billion). Aside from that, individual productivity loss is estimated to be .37 per day per year. The monetary value of avoiding the restricted working day is PKR 23 for one home, whereas the monetary benefit of lowering the PM10 level is PKR 161000/ for the entire district. The research study suggests implementing the ban on stone crush production and technology adaptation in the residential areas.

Universal Basic Income in a DevelopingEconomy with a Large Informal Sector

We analyze the implication of a Universal Basic Income (UBI) policy introduction in a country with a large informal sector. The model features frictions in the labor market, incomplete markets, risk-averse workers, and heterogeneity in occupation and asset position. A payroll tax on formal firms finances policies to insure workers. We calibrate the model to the Brazilian economy. The introduction of a budget-neutral UBI that replaces an existing Unemployment Insurance (UI) policy reduces welfare by around 1%. However, introducing UBI together with the UI policy increases the welfare of workers by around 0.8%. Poorer households are the ones that benefit the most from the UBI. The maximum welfare gain is achieved with a combined UBI+UI policy with an ex-post payroll tax of 20%. When replacing UI, UBI cannot increase aggregate welfare for any value of the transfer.

Efficient use of immunosuppressants for kidney transplants

A recent development of immunosuppressive protocols (or simply, suppressants) offers a new option to patients suffering from end-stage renal disease: transplants from biologically incompatible donors. Suppressants are currently being used for direct transplants within patient–donor pairs, but they can be utilized more efficiently when combined with kidney exchanges. To assess the welfare gains from doing so, we introduce the “minimum chains algorithms” for different sizes of feasible exchanges. Using these algorithms, we calculate the minimal number of suppressants needed for transplants for a group of patient–donor pairs. Our simulation results show that (i) a significant reduction of suppressants can be achieved by implementing this proposal, (ii) it suffices to arrange 2-way exchanges for the best use of suppressants, and (iii) the welfare gain varies with the ABO blood-type distribution, and the gain in Korea appears to be larger than that in the United States. Finally, we assess the value (or cost) of each patient–donor pair by comparing the outcomes of the pools with and without the pair.

Do investors value shareholder perks? Evidence from Japan

By focusing on the price and trading volume movements around the ex-days of shareholder perks, we investigate whether and how investors value shareholder perks. Using comprehensive shareholder perks data from Japan, we demonstrate a significant price decline for stocks with shareholder perks around ex-days, as an evidence that shareholder perks are valuable for investors. We also show that heterogeneous preference for shareholder perks among investors leads to active trading around the ex-day. A price drop larger than the estimated cost of shareholder perks implies that gift giving is welfare increasing, providing a new insight into the long-standing debate on whether gift giving creates welfare gain or loss. This study also provides empirical findings that are consistent with behavioral model of mental accounting, which posits that receiving a gift-in-kind rather than cash or gift cards is utility increasing for consumers.

Finance-Growth Nexus in Eastern and Southern African Countries: Insights from a Panel ARDL Analysis

This study analysed the finance-growth nexus for countries in the East African Community (EAC) and the Southern Africa Development Community (SADC). This was done an attempt to identify countries where Financial Sector Development (FSD) has the largest/least growth effect and the regional bloc moderation in such effect based on panel Error correction ARDL model. The aggregate data were obtained from the World Development Indicators (WDI) for a total of 14 countries, five (5) of which being in the EAC and the rest being in the SADC. The observations suggested that the regional bloc moderation effect transforms an otherwise insignificant effect of FSD on growth into a positive one specifically for broad money growth among the EAC member countries. This is a signal that a monetary union for EAC member countries could spur an overall welfare gain. Growth-finance nexus however, exhibited short and long run trade-offs in countries within the SADC. In the short run there have been significant GDP growth responses as a result of FSD but such effect turns out to be detrimental in the long run. As such difficult choices had to be made between addressing short run GDP volatility and achieving higher GDP growth in the SADC.

The EU’s Gain (Loss) from More Emission Trading Flexibility—A CGE Analysis with Parallel Emission Trading Systems

The EU has established the world’s first cross-border emission-trading systems (ETS) for greenhouse gas (GHG) emissions, currently covering aviation, emission-intensive sectors, and electricity (EITE). The EU Commission has offered to apply emissions trading in new sectors where emissions from maritime transport will be incorporated into the current EU ETS, while a separated emissions trading system will cover emissions from road transport and the building sector. This paper employs a multi-regional multi-sectoral computable general equilibrium (CGE) model with two simultaneous international emission permit markets. After examining the abatement costs for the EU regions, various policy scenarios are implemented to study the welfare effects of forming an ETS covering the sectors other than EITE (NEIT) and its linking with the EITE sectors under two different baselines and four emission reduction targets. The results provide several important insights: (i) Marginal abatement costs in Germany and the Eastern European Union region (EEU) are significantly lower than in the rest of the EU regions. (ii) The carbon price in the emission permit market covering NEIT is significantly higher than the carbon price in the emission permit market covering EITE. (iii) Germany and EEU appear as notable suppliers of emission permits in both markets. (iv) There is a significant aggregate welfare gain under the scenario in which the ETS covering NEIT co-exists parallel with the ETS covering EITE. (v) The aggregate welfare in the EU under the full integration of EITE and NEIT may fall below its value under the scenario with two parallel emission permit markets.

Taxing the heat out of the U.S. food system

This article examines the effectiveness and consequences of using carbon taxes on food purchases to contribute to achieving the U.S. greenhouse gas emissions (GHGEs) reduction target for 2025. Using U.S. Department of Agriculture National Household Food Acquisition and Purchase Survey data and the elasticities derived from the Quadratic Almost Ideal Demand System model, we simulate multiple uncompensated or revenue-neutral carbon tax policy scenarios on different food groups. We apply a carbon tax rate that is proportional to the GHGEs generated throughout each foods lifecycle, computed using Economic Input-Output Life Cycle Assessment. We evaluate the impact of the tax on 1) quantity of GHGEs mitigated and social welfare; 2) nutritional outcomes; 3) distributional implications. Our results show that carbon taxes on food purchases decrease GHGEs from the agricultural and food sectors by 1.9 to 4.8 percent and generate up to $839 billion 2012 dollars social welfare gain per year due to avoided GHGEs-related external costs. However, tradeoffs exist among climate, nutritional and distributional goals. For instance, the most effective policy in reducing GHGEs is regressive and generates the highest loss in consumer surplus per kilogram of emission reduction. Moreover, the quantity of health-promoting nutrients falls significantly in almost all scenarios. Overall, our findings show that the use of carbon taxes alone may not be the most effective way to reduce GHGEs from U.S. food purchases. Additional policies, such as subsidies on less carbon intensive foods, may be needed to encourage consumers of all income level to adopt more sustainable diets without increasing health and social inequalities.

Effects of Economic Partnership Agreements Between Ecowas and the EU on Trade, Revenue and Welfare of Agricultural Trade of Ecowas Bloc

This study examined the Effects of Economic Partnership Agreements between ECOWAS and the EU on Trade, Revenue and Welfare of Agricultural trade of ECOWAS bloc. The specific objectives of the study were to:(i) estimate the potential trade creation and diversion effects of EPA on agricultural trade of ECOWAS bloc, (ii) estimate the potential revenue effects of EPA on agricultural trade of ECOWAS bloc and (iii) estimate the potential welfare effects of EPA on agricultural trade of ECOWAS bloc. World Integrated Trade Solutions provided access to an online secondary data as classified by United Nations Harmonized system. The result on the potential trade creation and diversion effects of EPA on both trading blocs showed that ECOWAS will gain US$198.9million in trade creation and lose US$58.4 million in Trade Diversion. On the other hand, there will be no trade creation for EU with negligible trade diversion of – US$0.2million. The result showed total potential tariff revenue losses of US$366.4million for ECOWAS bloc post EPA. On the other hand, EU will lose (US$951.8million) its agricultural products post EPA. The result further showed potential welfare gain of US$27.6million for consumers of ECOWAS bloc. On the other hand, there will be welfare gain of the EU at US$243.5million for their consumers post EPA. Among all the recommendations, the study therefore points out that the on-going EPA negotiations between ECOWAS and the EU need not to be hurriedly signed by ECOWAS bloc. Also, ECOWAS needs to strengthen its agricultural production efficiency to be able to compete globally and encourage its individual countries to return to a single digit borrowing interest rate to encourage more investment by local agricultural producers if they want to enjoy the benefits of trade treaties at long run if EPA is eventually signed.

Can environmental tax curb air pollution: evidence from China

ABSTRACT Using the environmental tax reform implemented in 2018 in China as a quasi-experiment, this paper employs PSM, DID, and DDD methods to investigate the causal impact of environmental tax on air pollution. Viewing those provinces that choose to set a higher tax rate than the original pollution fee rate as the treatment group and provinces that do not increase the tax rate as the control group, this paper provides robust evidence that the environmental tax reform is effective in reducing PM2.5 and SO2 concentration level, while the effect is smaller and inconsistent for NO2. A back-of-the-envelope welfare analysis suggests that a 1-unit increase in the environmental tax rate is associated with a reduction of 5,616 in total deaths and a welfare gain of $28.256 billion in 2005 USD for all Chinese households.

Preferences for COVID-19 epidemic control measures among French adults: a discrete choice experiment.

In this stated preferences study, we describe for the first time French citizens’ preferences for various epidemic control measures, to inform longer-term strategies and future epidemics. We used a discrete choice experiment in a representative sample of 908 adults in November 2020 (before vaccination was available) to quantify the trade-off they were willing to make between restrictions on the social, cultural, and economic life, school closing, targeted lockdown of high-incidence areas, constraints to directly protect vulnerable persons (e.g., self-isolation), and measures to overcome the risk of hospital overload. The estimation of mixed logit models with correlated random effects shows that some trade-offs exist to avoid overload of hospitals and intensive care units, at the expense of stricter control measures with the potential to reduce individuals’ welfare. The willingness to accept restrictions was shared to a large extent across subgroups according to age, gender, education, vulnerability to the COVID-19 epidemic, and other socio-demographic or economic variables. However, individuals who felt at greater risk from COVID-19, and individuals expressing high confidence in the governmental management of the health and economic crisis, more easily accepted all these restrictions. Finally, we compared the welfare impact of alternative strategies combining different epidemic control measures. Our results suggest that policies close to a targeted lockdown or with medically prescribed self-isolation were those satisfying the largest share of the population and achieving high gain in average welfare, while average welfare was maximized by the combination of all highly restrictive measures. This illustrates the difficulty in making preference-based decisions on restrictions.Supplementary InformationThe online version contains supplementary material available at 10.1007/s10198-022-01454-w.

Seafood supply and demand disruptions: The Covid-19 pandemic and shrimp

We develop a theoretical trade model based on classical welfare economics and apply it empirically to both importers and exporters of shrimp, the most traded seafood, to determine the effects of the Covid-19 pandemic on shrimp produced and consumed in the U.S. and globally. We consider two time periods and compare these to the base period before the pandemic. Period 1 (March–June 2020): there is a net economic loss globally of $194 million due to lockdowns. Period 2 (July 2020–June 2021): there is a net welfare gain globally of $885 million due to increased shrimp demand. Overall, the global net economic gain was $692 million. For the United States alone, shrimp consumers gained $470 million while shrimp producers gained $24 million, which is relatively consistent with the net quasi-consumer gain of $475 million due to the Covid-19 pandemic.

Optimal energy taxes and subsidies under a cost-effective unilateral climate policy: Addressing carbon leakage

We analyse how a country pursuing a unilateral climate policy may contribute to a reduction in global CO2 emissions in a cost-effective way. To do so its system of energy taxes and subsidies must account for leakage of emissions from the domestic to the foreign economy. We focus on leakage occurring via international trade in electricity and via shifts between domestic and foreign production of other goods. The optimal tax-subsidy scheme is based on an intuitive principle: Impose a uniform carbon tax on all additions to global emissions caused by changes in domestic production and consumption of energy, including additions to emissions occurring via shifts in international trade. Emissions from the sector exposed to foreign competition should be taxed at reduced rates to avoid excessive carbon leakage, and a part of the carbon tax on electricity should be levied at the consumer rather than the producer level to ensure taxation of the carbon content of imported electricity. Producers of renewables-based electricity should receive a subsidy to internalize their contribution to the reduction of global emissions. In other sectors emissions should be taxed at a uniform rate corresponding to the marginal social cost of meeting the target for emissions reduction. Simulations calibrated to data for the Danish economy suggest that redesigning energy taxes and subsidies to account for carbon leakage can generate a welfare gain.

The best is yet to come: The impact of retirement on prosocial behavior

This paper examines how retirement affects prosociality. We show that this important lifestyle change leads to increased volunteering and to a more altruistic behavior. We use a novel combination of representative cross-sectional and longitudinal individual-level survey data from 22 European countries, and a complementary incentivised field experiment on a large representative sample of individuals. The retirement effect on volunteering is strong in the survey data, and using the field experiment we document a comparable result. Moreover, the evidence from the experiment data suggests that this change is not just attributable to external factors, such as lower need for virtue signalling or an increased leisure budget, but suggests an overall change in prosociality. Given the ageing of the population these are policy-relevant findings. The welfare gain driven by increased prosociality, through increased volunteering and transfers, should be considered in retirement age reforms.

Does the early retirement policy really benefit women?

China’s mandatory retirement policy requires female workers to retire five years earlier than their male counterparts. The conventional wisdom behind this policy is that it benefits women by relieving them from work earlier, providing them with more years of public pension benefits than men. However, is the early retirement policy really welfare-improving for women? In this paper, we quantitatively evaluate the welfare consequences of China’s gender-specific mandatory retirement policy using a calibrated overlapping generations model with heterogeneous agents and incomplete markets. We find that early mandatory retirement reduces welfare for women. One of the reasons for this result is that China’s public pension benefits are only partially indexed to economic growth, and therefore, women who retire earlier than men benefit less from economic growth. Our quantitative results suggest that equalizing the retirement age across genders will generate welfare gains for both men and women. Furthermore, we find low replacement rate and high men to women ratio diminish this welfare gain.

Is faster better? An economic evaluation of rapid and ultra-rapid genomic testing in critically ill infants and children

PurposeTo evaluate whether the additional cost of providing increasingly faster genomic results in pediatric critical care is outweighed by reductions in health care costs and increases in personal utility. MethodsHospital costs and medical files from a cohort of 40 children were analyzed. The health economic impact of rapid and ultra-rapid genomic testing, with and without early initiation, relative to standard genomic testing was evaluated. ResultsShortening the time to results led to substantial economic and personal benefits. Early initiation of ultra-rapid genomic testing was the most cost-beneficial strategy, leading to a cost saving of AU$26,600 per child tested relative to standard genomic testing and a welfare gain of AU$12,000 per child tested. Implementation of early ultra-rapid testing of critically ill children is expected to lead to an annual cost saving of AU$7.3 million for the Australian health system and an aggregate welfare gain of AU$3.3 million, corresponding to a total net benefit of AU$10.6 million. ConclusionEarly initiation of ultra-rapid genomic testing can offer substantial economic and personal benefits. Future implementation of rapid genomic testing programs should focus not only on optimizing the laboratory workflow to achieve a fast turnaround time but also on changing clinical practice to expedite test initiation.