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The marginal utility of income

Layard, R., Mayraz, G. and Nickell, S. (2008) The marginal utility of income. Journal of Public Economics, 92 (8-9). pp. 1846-1857. ISSN 0047-2727

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Identification Number: 10.1016/j.jpubeco.2008.01.007

Abstract

In normative public economics it is crucial to know how fast the marginal utility of income declines as income increases. One needs this parameter for cost-benefit analysis, for optimal taxation and for the (Atkinson) measurement of inequality. We estimate this parameter using four large cross-sectional surveys of subjective happiness and two panel surveys. Altogether, the data cover over 50 countries and time periods between 1972 and 2005. In each of the six very different surveys, using a number of assumptions, we are able to estimate the elasticity of marginal utility with respect to income. We obtain very similar results from each survey. The highest (absolute) value is 1.34 and the lowest is 1.19, with a combined estimate of 1.26. The results are also very similar for subgroups in the population. Thus, on the basis of our estimates, the marginal utility of income declines somewhat faster than in proportion to the rise in income.

Item Type: Article
Official URL: http://www.sciencedirect.com/science/journal/00472...
Additional Information: © 2008 Elsevier B.V.
Divisions: Economics
Centre for Economic Performance
Subjects: H Social Sciences > H Social Sciences (General)
H Social Sciences > HC Economic History and Conditions
JEL classification: D - Microeconomics > D1 - Household Behavior and Family Economics
D - Microeconomics > D6 - Welfare Economics > D61 - Allocative Efficiency; Cost-Benefit Analysis
H - Public Economics > H0 - General > H00 - General
H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency; Optimal Taxation
I - Health, Education, and Welfare > I3 - Welfare and Poverty > I31 - General Welfare; Basic Needs; Living Standards; Quality of Life; Happiness
Sets: Departments > Economics
Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 09 Aug 2013 11:58
Last Modified: 20 Sep 2019 01:11
URI: http://eprints.lse.ac.uk/id/eprint/51618

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