# A welfare evaluation of the 1986 tax reform for married couples in the United States

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## Abstract

This paper evaluates the welfare effects of the 1986 Tax Reform Act (TRA86). We rely on different welfare metrics, which fully retain preference heterogeneity and are based on different ethical priors. We estimate utility functions with preference heterogeneity on the basis of structural models of family labor supply. Then, using these estimated preferences, we compute and compare different well-being rankings corresponding to different ways of measuring well-being. Finally, we identify the losers and the winners of TRA86, in absolute and relative terms, for each of the welfare metrics.

## Keywords

Welfare measures Tax reform Preference heterogeneity Discrete model Labor supply## JEL Classification

D63 H31 J22## Notes

### Acknowledgements

The collection of data used in this study was partly supported by the National Institutes of Health under Grant Number R01 HD069609 and the National Science Foundation under award number 1157698. We are very grateful to François Maniquet for helpful discussions and comments. We would like also to thank Marc Fleurbaey, Dirk Neumann, two anonymous reviewers, and the participants at the CORE seminar (Université catholique de Louvain) and at the Social Choice and Welfare Meeting 2014 (Boston) for their remarks and suggestions. Any remaining errors are our own.

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