Essays on Inequality: Income Distribution, (Just) Taxation and Well-being; Dissertation

Monographien/ Sammelwerke extern , IX, 151 S.

Maria Metzing

Berlin: FU Berlin, 2019, IX, 151 S.

Abstract

This dissertation focuses on three dimensions of inequality: income, (just) taxation, and well-being. All chapters focus on a similar time horizon (2000 to 2015) and essentially on the same geographical area, Germany. The chapters are organized in four parts, each examining a specific research question and based on evidence from microdata - the German Socio-Economic Panel (SOEP). The analysis of chapter 2 is additionally based on European Union Statistics on Income and Living Conditions (EU-SILC).Chapter 2 develops a new method to obtain top-corrected income distributions by combining easily available information from tax and survey data. The benefits of the two data sources are combined by imputing top incomes in survey data using the information on top income distribution from tax data. In detail, the integrated approach replaces the top 1 % of the survey income distribution with Pareto-imputed incomes using the information on the top incomes' distribution from the World Wealth and Income Database (WID). This approach is easily applicable by relying on information publicly available from the WID for the upper tail of the distribution and easily accessible survey data, such as the German SOEP or EU-SILC, for the middle and bottom of the distribution. Neither access to tax record microdata, which is limited and difficult to obtain in many countries, nor record linkage, which is often not allowed, is needed. Furthermore, this integrated approach allows for producing inequality measures for a variety of income definitions and for the entire population of a country, e.g., analyzing inequality in households' needs. We apply our approach to German SOEP and European EU-SILC survey data which in some countries include administrative data and find higher inequality in those European countries that exclusively rely (Germany, UK) or have relied (Spain) on interviews for the provision of EU-SILC survey data as compared to countries that use administrative data.Chapter 3 uses the optimal taxation framework by Saez (2002). A common assumption in the optimal taxation literature is that the social planner maximizes a welfarist social welfare function with weights decreasing with income. However, high transfer withdrawal rates in many countries imply very low weights for the working poor in practice. We reconcile this puzzle by extending the optimal taxation framework by \cite{Saez2002} to allow for alternatives to welfarism. In an exercise of positive optimal taxation, we calculate weights of a social planner's function as implied by the German tax and transfer system based on the concepts of welfarism and alternative principles, where the social planner minimizes the weighted sum of increasing functions of absolute or relative tax burdens. This reflects the idea that the total tax liabilities of specific groups matter for the design of the tax system and very high tax liabilities should be avoided per se. While this point is often made in public debates, it does not follow from welfarist considerations. We find that the absolute tax burden principle is in line with social weights that decline with net income. Moreover, we illustrate how the model can be used with survey data using a novel question from the German Socio-Economic Panel on perceived just net income.While chapter 3 evaluates the German tax and transfer system and finds that the absolute tax burden principle is in line with the German tax schedule, chapter 3 does not consider individuals' preferences of the German population.In chapter 4, I examine if individuals in Germany prefer Equal Sacrifice. The ability-to-pay approach assesses taxes paid as a sacrifice by the taxpayers. This raises the question of how to define and how to measure it: in absolute, relative, or marginal terms? U.S. respondents prefer a tax schedule that is either a pure (absolute) Equal Sacrifice or a mixture of Equal Sacrifice and Utilitarianism Weinzierl (2014). To determine whether Germans prefer absolute, relative, or marginal Equal Sacrifice principle, I use a question item from the German Socio-Economic Panel (SOEP) to obtain information on the level of taxes individuals consider as fair. I estimate tax and transfer schedules with regard to three Equal Sacrifice definitions and analyze which one of the three best fits the data. The absolute and relative Equal Sacrifice principle are the dominant candidates in terms of fit.Chapter 2, 3, and 4 focuses on monetary indicators for inequality. Chapter 5 uses well-being as a non-monetary indicator of inequality.Chapter 5 examines experienced well-being of employed and unemployed workers. We use the survey-adapted Day Reconstruction Method (DRM) of the Innovation Sample of the German Socio-Economic Panel Study (SOEP-IS) to analyze the role of the employment status for well-being, incorporating complete time use. Summarizing the average share of pleasurable minutes, we generate the P-index. We show that - in contrast to evaluative life satisfaction - the average unemployed experiences more pleasurable minutes due to the absence of working episodes. Hence, we examine working episodes in depth. While working is among the activities with the highest propensities for an unpleasant experience, it is also among the most meaningful activities. We show that meaning is a central non-monetary determinant for a pleasurable work episode and find that pleasure during work and job satisfaction, in general, have the same association with meaning.

Maria Metzing

Wissenschaftliche Mitarbeiterin in der Infrastruktureinrichtung Sozio-oekonomisches Panel