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International Tax and Public Finance

, Volume 22, Issue 2, pp 224–251 | Cite as

Empirical welfare analysis with preference heterogeneity

  • André M. J. DecosterEmail author
  • Peter Haan
Article

Abstract

We apply recently proposed individual welfare measures in the context of preference heterogeneity, derived from structural labour supply models. Contrary to the standard practice of using reference preferences and wages, these measures preserve preference heterogeneity in the normative step of the analysis. They also make the ethical priors, implicit in any interpersonal comparison, more explicit. Information on preference heterogeneity is obtained from a structural discrete choice labour supply model for married women estimated on microdata from the Socio Economic Panel in Germany. We construct welfare orderings of households according to the different metrics, each embodying different ethical choices concerning the treatment of preference heterogeneity in the consumption-leisure space and provide empirical evidence about the sensitivity of the welfare orderings to different normative principles. We also discuss how sensitive the assessment of a tax reform is to the choice of different metrics.

Keywords

Welfare measures Labour supply Preference heterogeneity 

JEL Classification

C35 D63 D78 H24 H31 J22 

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Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.Department of EconomicsKU LeuvenLouvainBelgium
  2. 2.DIWBerlinGermany
  3. 3.Freie UniversitätBerlinGermany

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