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Relative Income, Redistribution and Well-being

Author

Listed:
  • FitzRoy, Felix

    (University of St. Andrews)

  • Nolan, Michael A.

    (University of Hull)

Abstract

In a model with heterogeneous workers and both intensive and extensive margins of employment, we consider two systems of redistribution: a universal basic income, and a categorical unemployment benefit. Well-being depends on own-consumption relative to average employed workers’ consumption, and concern for relativity is a parameter that affects model outcomes. While labour supply incurs positive marginal disutility, we allow negative welfare effects of unemployment. We also compare Rawlsian and utilitarian welfare in general equilibrium under the polar opposite transfer systems, with varying concern for relativity. Basic income Pareto dominates categorical benefits with moderate concern for relativity in both cases.

Suggested Citation

  • FitzRoy, Felix & Nolan, Michael A., 2010. "Relative Income, Redistribution and Well-being," IZA Discussion Papers 5241, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp5241
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    Cited by:

    1. Felix FitzRoy & Michael Nolan, 2016. "Welfare Policies, Relative Income and Majority Choice," Manchester School, University of Manchester, vol. 84(1), pages 81-94, January.

    More about this item

    Keywords

    relative income; redistribution; basic income; unemployment benefits; happiness; well-being;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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