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/lp/de-gruyter/a-new-general-equilibrium-welfare-measure-with-application-to-labor-tPfe8Oyqqp
- Publisher
- de Gruyter
- Copyright
- © 2022 Walter de Gruyter GmbH, Berlin/Boston
- ISSN
- 1935-1690
- eISSN
- 1935-1690
- DOI
- 10.1515/bejm-2021-0024
- Publisher site
- See Article on Publisher Site
Abstract
AbstractIn this paper we extend the Hicksian compensating variation welfare measure in two directions. First, we adjust the size of the compensating variation in order to account for the fact that the compensating transfers will result in changes in output, as well as in prices, because labor and, in dynamic models, capital will adjust in response to these transfers. Second, we extend the measure to a dynamic setting with possibly time non-separable preferences. We find that these considerations become more significant for the welfare cost of higher labor income taxes as one moves from static to dynamic models, to models with time non-separable preferences, and finally to models with uncertainty.
Journal
The B.E. Journal of Macroeconomics – de Gruyter
Published: Jan 1, 2023
Keywords: welfare measure; compensating variation; dynamic general equilibrium; labor income taxes; E60; H20; H30