Conference Agenda

Status or income rank matters to most of us. Rank is not a fixed characteristic, however: we could be doing well relative to neighbors, for example, but much less so relative to others in our occupation. We might be big fish in some ponds, but smaller fish in others, which makes the choice of a pond a decision with important welfare consequences. In this paper, we report on the results of a large-scale field experiment that first elicited the beliefs of a representative sample of mid-career Finns about their income ranks in various reference distributions and, in one condition, allowed them to choose which rank would be revealed to them, after which we collected a range of welfare and preference measures. We characterize the choice of reference population and its implications for individual well-being. Last, we compare the effects to cases where the reference population is assigned at random.

Surveys and experiments suggest that people hold workers more responsible for wage gains stemming from factors indicative of merit, such as education, than other factors. This paper shows how to design redistributive income taxes that account for workers’ merits. First, we introduce meritocratic social welfare functions that accommodate individual preferences and hold workers responsible for the part of their wage stemming from merit. Second, we show how to map primitives of these social welfare functions into empirically measurable statistics and exploit long-run comprehensive Norwegian income and family relations data to examine the relationship between merit and wages. Third, we simulate linear and non-linear optimal income tax implications of the meritocratic social welfare functions, given our measurement of the role of merits. The result shows that accounting for merit leads to lower optimal marginal income tax rates than the utilitarian criterion recommends.

The present paper analyzes optimal redistributive income taxation in a Mirrleesian framework extended with other-regarding preferences at the individual level. We start by developing a general model where the other-regarding preference component of the utility functions is formulated to encompass almost any form of preferences for other people’s disposable income, and then continue with four prominent special cases. Two of these reflect self-centered inequality aversion, based on Fehr and Schmidt (1999) and Bolton and Ockenfels (2000), whereas the other two reflect non-self-centered inequality aversion, where people have preferences for a low Gini coefficient and a high minimum income level in society, respectively. We find that other-regarding preferences may substantially increase the marginal tax rates, including the top rates, and that different types of other-regarding preferences have very different implications for optimal taxation.

This paper studies the consequences of charitable giving for both the optimal tax system and the optimal provision of public goods. In a setting where heterogeneous individuals can give to a variety of charitable causes, I first characterize the optimal grants that the government should allocate to different charities. I show that the desirability of such grants depends on the relative strength of warm glow compared to the cost of fundraising. Generally, preferences for public goods are not relevant for determining the necessity of grants. However, I provide a new Samuelson rule describing how warm glow, fundraising costs, and public good preferences collectively affect the optimal level of public goods. Second I derive new optimal nonlinear tax formulas for both income and donation that are robust to a wide set of microfoundations for both labor supply, public good preferences and donation behavior.