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Saša Ranđelović (University of Belgrade) “Social Welfare Effects of Progressive Income Taxation Under Rising Inequality”

The next meeting of BeNA in Summer Semester 2016 is taking place on Wednesday, June 8th, 6.15-7.45 pm at DIW Berlin, Room 2.026 (Schmoller).

We are glad to welcome Saša Ranđelović (University of Belgrade) who will present his paper “Social Welfare Effects of Progressive Income Taxation Under Rising Inequality” (joint with Marko Vladisavljević). Please see the abstract below. After the meeting we are all going out for a dinner. Everyone is welcome to join.

We would also like to encourage you to talk with Saša about your research. In order to set up an appointment, please pick a time slot via Doodle. The office hour will take place at DIW, in the lounge in the 1st floor. For further information, please contact Alexandra Fedorets (afedorets@diw.de).

For all upcoming talks in the summer term have a look at the semester program.

Abstract “Social Welfare Effects of Progressive Income Taxation Under Rising Inequality” (joint with Marko Vladisavljević)

During the recent economic crisis, labour market participation and employment in Serbia declined substantially, while inequality posted salient rise (by 4.3 pp). The aim of this paper is to evaluate whether the structural changes in the labour market and income distribution during the crisis have created the stronger case for more progressive income taxation. We employ the tax-benefit microsimulation model (SRMOD) and the econometric methods, on 2007 and 2012 household living conditions data for Serbia to estimate the social welfare effects of the shift from flat to progressive income tax, before and after the crisis, assuming that the social welfare is a function of the individual utility, which is dependent on income, leisure and the vector of parameters. Our results show that both in 2007 and 2012 shift from flat to progressive taxation would trigger slight rise in the social welfare (by 0.56% and 0.38% respectively), the result being robust both under utilitarian and egalitarian specification of the social welfare function. Rise in social welfare is the net effect of the negative impact of increase in the working hours (at the lower income levels) on utility and the positive impact of the rise in the total disposable income (due to increase in the labour supply) and the progressive redistribution of income on utility. Positive social welfare effects in 2007 are slightly, relatively larger than in 2012, reflecting the stronger labour supply reaction in the later year and the change in income-leisure preferences.