Periodic Reporting for period 4 - VALURED (Value Judgments and Redistribution Policies)
Periodo di rendicontazione: 2023-08-01 al 2024-06-30
The project VALURED made three substantial contributions to the field of economics.
First, it proposed a mapping approach to reassess the relationship between value judgments and optimal economic (redistribution) policies. On the one side, the mapping approach provides the reader (politicians and general audience) with an ethical menu: for each ethical principles in the menu, the analysis tells the corresponding optimal redistribution policies. On the other side, it identifies the ethical principles underlying policies: for each policy, the analysis tells the value judgement that justify such a policy.
Second, it has demonstrated how to account for a wide and diverse set of ethical views held by individuals. The focus is on both static and dynamic settings of income distribution and redistribution and, in particular, on individual differences in terms of their preferences, needs, skills, information, etc. While fairness is a multifaceted and possibly complex concept, VALURED showed that there are tractable social welfare functions that accommodate these fairness views, as well as any trade-off between equity and efficiency.
Third, the VALURED project has demonstrated how these value judgments can be mapped into optimal redistribution policies. The studies are primarily concerned with the redistribution of income, capital, and wealth, yet their insights are applicable to a vast array of economic domains, particularly those concerned with optimal policymaking. For example, conventional approaches to optimal income taxation overlook the possibility that individuals may (partially) deserve their labour returns. The VALURED project demonstrated how existing tax schedules can be rationalised through the account of a "reward principle," whereby individuals may be deemed to deserve a portion of their incomes.
First, it proposed a mapping approach to reassess the relationship between value judgments and optimal economic (redistribution) policies. On the one side, the mapping approach provides the reader (politicians and general audience) with an ethical menu: for each ethical principles in the menu, the analysis tells the corresponding optimal redistribution policies. On the other side, it identifies the ethical principles underlying policies: for each policy, the analysis tells the value judgement that justify such a policy.
Second, it has demonstrated how to account for a wide and diverse set of ethical views held by individuals. The focus is on both static and dynamic settings of income distribution and redistribution and, in particular, on individual differences in terms of their preferences, needs, skills, information, etc. While fairness is a multifaceted and possibly complex concept, VALURED showed that there are tractable social welfare functions that accommodate these fairness views, as well as any trade-off between equity and efficiency.
Third, the VALURED project has demonstrated how these value judgments can be mapped into optimal redistribution policies. The studies are primarily concerned with the redistribution of income, capital, and wealth, yet their insights are applicable to a vast array of economic domains, particularly those concerned with optimal policymaking. For example, conventional approaches to optimal income taxation overlook the possibility that individuals may (partially) deserve their labour returns. The VALURED project demonstrated how existing tax schedules can be rationalised through the account of a "reward principle," whereby individuals may be deemed to deserve a portion of their incomes.
Differences in individuals’ preferences, needs, skills, and information are key to explain variation in individuals’ behavior and to anticipate individuals’ responses to policy changes. There is no consensus, however, about how to take these differences into account when evaluating redistribution policies and individuals have very different opinions about how to do so. The main contribution of the project was to explore how a large spectrum of ethical views can be accommodated in economic frameworks and how these can be used to identify optimal redistribution policies in the context of income, capital, and wealth taxation.
A central building block of the project was to formalize and axiomatically characterize a welfare criterion that prioritizes those individuals who are worse-off relative to a “fair” distribution of resources.
Piacquadio (2020, Journal of Economic Theory) develops these ideas for intergenerational resource distribution problems. The project further generalized and extended these results to accommodate a large set of value judgments for a broad range of redistribution settings, where some inequalities might be justified on the ground of preference diversity, needs, skills, desert, and information (Berg and Piacquadio, 2024; Berg, Håvarstein, and Piacquadio, 2024).
Beyond the ethical choice of the ideal distribution, the project also advanced our understanding of how to deal with inequalities. Nesje and Piacquadio (2024) identify all theories of justice that disentangle social attitudes to discounting and inequality and, thus, prepare the ground for the application of these results to dynamic models.
Finally, Piacquadio (2023) highlights the difference in perspective between "having something" and "being deprived of something" and argues that the latter approach is particularly relevant to study poverty alleviation policies.
The next achievement of the project was to show how the broad range of ethical views maps into optimal taxation policies. For example, Berg and Piacquadio (2024) show that the US income tax system can be rationalized by two ethical choices: first, workers deserve their wage rate; and, second, there is little concern for tax progressivity. Berg, Håvarstein, and Piacquadio (2024) show how different family redistribution policies across European countries can be explained by a different ethical account of household size. Guvenen et al., (2023, Quarterly Journal of Economics) shows that, with heterogeneous returns to investments, capital income and wealth taxation have opposite effects. Under capital income taxation, entrepreneurs who are more productive, and therefore generate more income, pay higher taxes. Under wealth taxation, entrepreneurs who have similar wealth levels pay similar taxes regardless of their productivity, which expands the tax base, shifts the tax burden toward unproductive entrepreneurs, and raises the savings rate of productive ones.
Kragh-Sørensen (2021) studies instead the optimal taxation of housing property vis-à-vis capital in a dynamic stochastic general equilibrium environment.
A central building block of the project was to formalize and axiomatically characterize a welfare criterion that prioritizes those individuals who are worse-off relative to a “fair” distribution of resources.
Piacquadio (2020, Journal of Economic Theory) develops these ideas for intergenerational resource distribution problems. The project further generalized and extended these results to accommodate a large set of value judgments for a broad range of redistribution settings, where some inequalities might be justified on the ground of preference diversity, needs, skills, desert, and information (Berg and Piacquadio, 2024; Berg, Håvarstein, and Piacquadio, 2024).
Beyond the ethical choice of the ideal distribution, the project also advanced our understanding of how to deal with inequalities. Nesje and Piacquadio (2024) identify all theories of justice that disentangle social attitudes to discounting and inequality and, thus, prepare the ground for the application of these results to dynamic models.
Finally, Piacquadio (2023) highlights the difference in perspective between "having something" and "being deprived of something" and argues that the latter approach is particularly relevant to study poverty alleviation policies.
The next achievement of the project was to show how the broad range of ethical views maps into optimal taxation policies. For example, Berg and Piacquadio (2024) show that the US income tax system can be rationalized by two ethical choices: first, workers deserve their wage rate; and, second, there is little concern for tax progressivity. Berg, Håvarstein, and Piacquadio (2024) show how different family redistribution policies across European countries can be explained by a different ethical account of household size. Guvenen et al., (2023, Quarterly Journal of Economics) shows that, with heterogeneous returns to investments, capital income and wealth taxation have opposite effects. Under capital income taxation, entrepreneurs who are more productive, and therefore generate more income, pay higher taxes. Under wealth taxation, entrepreneurs who have similar wealth levels pay similar taxes regardless of their productivity, which expands the tax base, shifts the tax burden toward unproductive entrepreneurs, and raises the savings rate of productive ones.
Kragh-Sørensen (2021) studies instead the optimal taxation of housing property vis-à-vis capital in a dynamic stochastic general equilibrium environment.
VALURED has contributed to the advancement of the economic literature with the following results.
1) The identification of transparent and compelling welfare criteria that accommodate a broad range of value judgments;
2) The proposal of the mapping approach to relate value judgments to optimal redistribution policies;
3) The characterization of welfare criteria that respect individuals’ preferences and account for individuals’ differences in needs, skills, preferences, and information;
4) The derivation of new insights for the design of income, capital, and inheritance taxation;
5) The development of simple formulas that express optimal policies as a function of observable heterogeneity and transparent ethical parameters.
1) The identification of transparent and compelling welfare criteria that accommodate a broad range of value judgments;
2) The proposal of the mapping approach to relate value judgments to optimal redistribution policies;
3) The characterization of welfare criteria that respect individuals’ preferences and account for individuals’ differences in needs, skills, preferences, and information;
4) The derivation of new insights for the design of income, capital, and inheritance taxation;
5) The development of simple formulas that express optimal policies as a function of observable heterogeneity and transparent ethical parameters.