nep-pbe New Economics Papers
on Public Economics
Issue of 2015‒12‒28
25 papers chosen by
Thomas Andrén

  1. Optimal Income Taxation with Unemployment and Wage Responses: A Sufficient Statistics Approach By Kory Kroft; Kavan J. Kucko; Etienne Lehmann; Johannes F. Schmieder
  2. The Effect of Wealth on Individual and Household Labor Supply: Evidence from Swedish Lotteries By David Cesarini; Erik Lindqvist; Matthew J. Notowidigdo; Robert Östling
  3. State Taxes and Spatial Misallocation By Pablo D. Fajgelbaum; Eduardo Morales; Juan Carlos Suárez Serrato; Owen M. Zidar
  4. Dynamic Elasticities of Tax Revenue: Evidence from the Czech Republic By Tomas Havranek; Zuzana Irsova; Jiri Schwarz
  5. Public debt and economic growth: Economic systems matter By Ahlborn, Markus; Schweickert, Rainer
  6. Piketty's Book and Macro Models of Wealth Inequality By Mariacristina De Nardi; Giulio Fella; Fang Yang
  7. Tax shifts By Milena Mathé; Gaetan Nicodeme; Savino Rua
  8. Tax Morale and Trust in Public Institutions By Wilfried Anicet Kouamé
  9. Explaining Consumption Excess Sensitivity with Near-Rationality: Evidence from Large Predetermined Payments By Lorenz Kueng
  10. "Redistribution in the Age of Austerity: Evidence from Europe, 2006-13" By Markus P.A. Schneider; Stephen Kinsella; Antoine Godin
  11. Reflections on the meaning and measurement of Unobserved Economies: What do we really know about the “Shadow Economy”? By Feige, Edgar L.
  12. Caught in the Middle? The Economics of Middle-Income Traps By Pierre-Richard AGENOR
  13. Tax Revenue Trends in Asia and Latin America: A Comparative Analysis By Joshua Aizenman; Yothin Jinjarak; Jungsuk Kim; Donghyun Park
  14. Work Incentives in the Social Security Disability Benefit Formula By Gopi Shah Goda; John B. Shoven; Sita Slavov
  15. Welfare Spending in the Long Run By Divounguy Nding, Orphe
  16. Income-Tested College Financial Aid and Labor Disincentives By Rajeev Darolia
  17. Is the output growth rate in NIPA a welfare measure? By Jorge Duran; Omar Licandro
  18. What Factors drive Inequalities in Carbon Tax Incidence? Decomposing Socioeconomic Inequalities in Carbon Tax Incidence in Ireland By Farrell, Niall
  19. House prices wealth effect and labor supply By Richard Disney; John Gathergood
  20. Introduction of soft budget constraint to analyze public administration reforms. Some evidence from the Hungarian public administration reform By Rosta, Miklós
  21. The Welfare Cost of Perceived Policy Uncertainty: Evidence from Social Security By Erzo F.P. Luttmer; Andrew A. Samwick
  22. Declining Wealth and Work Among Male Veterans in the Health and Retirement Study By Alan L. Gustman; Thomas L. Steinmeier; Nahid Tabatabai
  23. On the Equilibrium and Welfare Consequences of Going Ahead of the Smiths By Frédéric Gavrel; Thérèse Rebière
  24. Knowledge of Future Job Loss and Implications for Unemployment Insurance By Nathaniel Hendren
  25. Inequality and welfare: Is Europe special? By Alain Trannoy

  1. By: Kory Kroft; Kavan J. Kucko; Etienne Lehmann; Johannes F. Schmieder
    Abstract: This paper reassesses whether the optimal income tax program features an Earned Income Tax Credit (EITC) or a Negative Income Tax (NIT) at the bottom of the income distribution, in the presence of unemployment and wage responses to taxation. The paper makes two key contributions. First, it derives a sufficient statistics optimal tax formula in a general model that incorporates unemployment and endogenous wages. This formula nests a broad variety of structures of the labor market, such as competitive models with fixed or flexible wages and models with matching frictions. Our results show that the sufficient statistics to be estimated are: the macro employment response with respect to taxation and the micro and macro participation responses with respect to taxation. We show that an EITC-like policy is optimal provided that the welfare weight on the working poor is larger than the ratio of the micro participation elasticity to the macro participation elasticity. The second contribution is to estimate the sufficient statistics that are inputs to the optimal tax formula using a standard quasi-experimental research design. We estimate these reduced-form parameters using policy variation in tax liabilities stemming from the U.S. tax and transfer system for over 20 years. Using our empirical estimates, we implement our sufficient statistics formula and show that the optimal tax at the bottom more closely resembles an NIT relative to the case where unemployment and wage responses are not taken into account.
    JEL: H21 H22 H23 J2 J21 J23
    Date: 2015–11
  2. By: David Cesarini; Erik Lindqvist; Matthew J. Notowidigdo; Robert Östling
    Abstract: We study the effect of wealth on labor supply using the randomized assignment of monetary prizes in a large sample of Swedish lottery players. We find winning a lottery prize modestly reduces labor earnings, with the reduction being immediate, persistent, and similar by age, education, and sex. A calibrated dynamic model of individual labor supply implies an average lifetime marginal propensity to earn out of unearned income of -0.11, and labor-supply elasticities in the lower range of previously reported estimates. The earnings response is stronger for winners than their spouses, which is inconsistent with unitary household labor supply models.
    JEL: J22 J26
    Date: 2015–11
  3. By: Pablo D. Fajgelbaum; Eduardo Morales; Juan Carlos Suárez Serrato; Owen M. Zidar
    Abstract: We study state taxes as a potential source of spatial misallocation in the United States. We build a spatial general-equilibrium model in which the distribution of workers, firms, and trade flows across states responds to state taxes and public-service provision. We estimate firm and worker mobility elasticities and preferences for public services using data on the distribution of economic activity and state taxes from 1980 to 2010. A revenue-neutral tax harmonization leads to aggregate real-GDP and welfare gains of 0.7%. Tax cuts by individual states lower own-state tax revenues and economic activity, and generate cross-state spillovers depending on trade linkages.
    JEL: E6 F12 H71 R13
    Date: 2015–11
  4. By: Tomas Havranek; Zuzana Irsova; Jiri Schwarz
    Abstract: Tax revenue elasticities with respect to tax bases are key parameters for the modeling of public finances. Yet the existing studies estimating these elasticities for post-transition countries disregard the effects of tax reforms on tax revenue, which renders their estimates inconsistent. We use a unique data set from the Czech Republic to account for the effects of reforms and estimate both short- and long-run tax revenue elasticities. Our results suggest that the long-run elasticities are 1.4 for wage tax, 0.9 for value added tax, 1.7 for profit tax, and 1 for social security contributions. The adjustment process for value added tax and social security contributions is fast, but for the remaining two categories it is important to distinguish between the short- and long-run elasticities: the initial response of revenue to changes in the bases is weak. In the case of wage tax it takes half a year for the elasticity to surpass unity.
    Keywords: Elasticity, error correction models, tax base, tax revenue
    JEL: H24 H25 H27
    Date: 2015–11
  5. By: Ahlborn, Markus; Schweickert, Rainer
    Abstract: Most studies on the relationship between public debt and economic growth implicity assume homegenous debt effects across their samples. We - in accordance with recent literature - challenge this view and state that there likely is a great deal of cross-country heterogeneity in that relationship. However, other than scholars assuming that all countries are different, we expect that clusters of countries differ. We identify three country clusters with distinct economic systems: Liberal (Anglo Saxon), Continental (Core EU members) and Nordic (Scandinacian). We argue that different degrees of fiscal uncertainty at comparable levels of public debt between those economic systems constitute a major source of hetergeneity in the debt-growth relationship. Our empirical evidence supports this assumption. Continental countries face more growth reducing public debt effects than especially Liberal countries. There, public debt apparently exerts neutral or even positive growth effects, whil for Nordic countries a non-linear relationship is discovered, with negative debt effects kicking in at public debt values of around 60% of GDP.
    Keywords: Public Debt,Economic Growth,Economic Systems,Fiscal Policy,Welfare State
    JEL: E62 P10 P51 H10
    Date: 2015
  6. By: Mariacristina De Nardi; Giulio Fella; Fang Yang
    Abstract: Piketty's book, Capital in the Twenty-First Century, discusses several factors affecting wealth inequality: rates of return on capital, output growth rates, tax progressivity, top income shares, and heterogeneity in saving rates and inheritances. This paper studies the role of various forces affecting savings in quantitative models of wealth inequality, discusses their successes and failures in accounting for the observed facts, and compares these model's implications with Piketty's conclusions.
    JEL: D14 E21 H2
    Date: 2015–11
  7. By: Milena Mathé (European Commission); Gaetan Nicodeme (European Commmission, ULB, CESifo, CEPR); Savino Rua (European Commission)
    Abstract: Shifting taxes away from labour to tax bases which are considered least detrimental to growth remains a common policy recommendation from the European Commission and other international institutions. This paper reviews the theoretical and empirical literature on the growth effects of tax shifts. It then takes stock of tax shifts in the EU Member States over the last years, giving a few examples of their implementation and of the hurdles Member tates have faced. Finally, it concludes on recent developments that may impact on the nature of future tax shifts
    Keywords: European Union, Taxation, Growth, Tax shift, labour taxation, VAT, redistribution
    JEL: H20 H30 N14 P35
    Date: 2015–10
  8. By: Wilfried Anicet Kouamé (GREDI, Universite de Sherbrooke)
    Abstract:  One significant puzzle in economics is to explain why people pay their taxes and why there are so many differences in tax compliance across countries. Tax morale literature try to tackle this puzzle with a sparse evidence from the relationship between taxpayers and public authorities (vertical relationship). As a novelty, this paper highlights both theoretically and empirically trust in public institutions as a new explanation to taxpayer’ willingness to comply. The theoretical framework goes beyond the standard model of tax evasion by allowing social norms and interactions with public institutions. For empirical evidence, I use the World Values Survey 2010-2014 to estimate the causal impact of trust in public institutions on tax morale. The findings suggest that in emerging and developing countries, social norms play a great role on tax morale, whereas in advanced countries institutional environment seems to be one of the most important factors. The results remain robust after exploiting and conducting several sensitivity analysis.
    Keywords: public institutions, signal effects, tax morale, tax evasion, trust
    JEL: D70 H26 H31 K42
    Date: 2015–12
  9. By: Lorenz Kueng
    Abstract: Using new transaction data I show that consumption is excessively sensitive to large, predetermined, regular, and salient payments from the Alaska Permanent Fund, with a large average marginal propensity to consume (MPC) of 30% for nondurables and services and 70% for total expenditures. This deviation from the standard inter-temporal consumption model is concentrated among households for whom the loss from failing to smooth consumption is small in terms of equivalent variation. In particular, the MPC is increasing in household income but decreasing in the size of the loss. As a result, statistically significant excess sensitivity in response to these large payments is consistent with households following near-rational alternative consumption plans. For macroeconomic policies, such as an economic stimulus program, these near-rational alternatives might be the more relevant behavior than the standard consumption model.
    JEL: D12 D14 D91 E21 H31
    Date: 2015–12
  10. By: Markus P.A. Schneider; Stephen Kinsella; Antoine Godin
    Abstract: We examine the relationship between changes in a country's public sector fiscal position and inequality at the top and bottom of the income distribution during the age of austerity (2006-13). We use a parametric Lorenz curve model and Gini-like indices of inequality as our measures to assess distributional changes. Based on the EU's Statistics on Income and Living Conditions SLIC and International Monetary Fund data for 12 European countries, we find that more severe adjustments to the cyclically adjusted primary balance (i.e., more austerity) are associated with a more unequal distribution of income driven by rising inequality at the top. The data also weakly suggest a decrease in inequality at the bottom. The distributional impact of austerity measures reflects the reliance on regressive policies, and likely produces increased incentives for rent seeking while reducing incentives for workers to increase productivity.
    Keywords: Inequality; Austerity; Europe; Fiscal Policy; Lorenz Curve
    JEL: D31 D63 E62 E65 H6
    Date: 2015–12
  11. By: Feige, Edgar L.
    Abstract: This paper reviews the meaning and measurement of unobserved economies germane to tax evasion and macroeconomic information systems. These include the unreported, non-observed, underground, illegal, informal and unrecorded economies. It reviews the progress and shortcomings of national and international agency efforts to measure these unobserved economies, noting what they have in common, what distinguishes one from another and their interconnections. It then examines the meaning of Professor Schneider’s Shadow Economy (SSE), and the veracity of his claim to have accurately estimated its size and trend worldwide by employing a MIMIC model methodology. It concludes that SSE estimates suffer from conceptual flaws, apparent manipulation of results and insufficient documentation for replication, questioning their place in the academic, policy and popular literature.
    Keywords: Tax evasion, shadow economy, non-observed, underground, illegal, informal, unrecorded, MIMIC, cash, National Income and Product Accounts, Schneider.
    JEL: C51 C82 E26 E41 H26 K42 O17
    Date: 2015–12–20
  12. By: Pierre-Richard AGENOR (University of Manchester)
    Abstract: This paper provides an overview of the recent analytical and empirical literature on middle-income traps. The first part examines the descriptive and statistical evidence on these traps. The second discusses the various arguments that have been put forward to explain the existence, and persistence, of middle-income traps. These arguments include diminishing returns to physical capital, exhaustion of cheap labor and imitation gains, insufficient quality of human capital, inadequate contract enforcement and intellectual property protection, distorted incentives and misallocation of talent, lack of access to advanced infrastructure, and lack of access to finance, especially in the form of venture capital. The third part considers public policies aimed at avoiding, and escaping from, middle-income traps. The concluding part identifies a number of directions in which the empirical and theoretical literature could fruitfully evolve.
    JEL: H54 O31 O41
    Date: 2015–12
  13. By: Joshua Aizenman; Yothin Jinjarak; Jungsuk Kim; Donghyun Park
    Abstract: We take stock of and compare tax revenue trends in Asia and Latin America. The tax revenues to GDP ratios increased significantly in both regions in the 2000s, although they remain visibly below European levels. Our analysis portrays a complex picture of the tax collection challenges facing developing countries. Overall, there remains sizable heterogeneity in the revenue performance of developing countries, and across regions. While progress has been made, the gap between the advanced economies and developing countries suggests ample room for future fiscal developments, and for more disaggregated studies of the tax mobilization challenges facing developing countries in the aftermath of the global financial crisis.
    Date: 2015–11
  14. By: Gopi Shah Goda; John B. Shoven; Sita Slavov
    Abstract: We examine the connection between taxes paid and benefits accrued under the Social Security Disability Insurance (SSDI) program on both the intensive and extensive margins. We perform these calculations for stylized workers given the existing benefit structure and disability hazard rates. On the intensive margin, we examine the effect of an additional dollar of earnings on the marginal payroll taxes contributed and future benefits earned. We find that the present discounted value of disability benefits received from an additional dollar of earnings, net of the SSDI payroll tax, generally declines with age, becoming negative around age 40 and reaching almost zero at age 63. On the extensive margin, we determine the effect of working an additional year on the additional payroll taxes and future benefits as a percentage of income. The return to working an additional year at an income level just large enough to earn Social Security credits for the year is large and positive through age 60. However, the return to working an additional full year is substantially smaller and becomes negative at approximately age 57. Thus, older workers face strong incentives to earn enough to obtain creditable coverage through age 60, but they face disincentives for additional earnings. In addition, workers ages 61 and older face work disincentives at any level of earnings. We repeat this analysis for stylized workers at different levels of earnings and find that, while the program transfers resources from high earners to low earners, the workers experience similar patterns in the returns to working.
    JEL: H31 H53 J22 J26
    Date: 2015–11
  15. By: Divounguy Nding, Orphe
    Abstract: In this paper,we construct an equilibrium search model of the labor market augmented to include lump sum taxes that finance government expenditures. Using the model, we can decompose the decline in labor force participation (LFP) into the policy effect and that of other factors such as declining economic output. Using census data for the state of Ohio, we learn that declining LFP and the increase in public assistance spending were caused by weaker economic output that led to an increase in the claimant count. Our results indicate that if the economy resembled the pre-crisis period, the Kasich administration would have led to an increase in LFP of approximately 0.6 percentage points. This effect goes up to 2% if all inactive workers are assumed to claim welfare income.
    Keywords: Government Spending, Taxation, Unemployment Insurance, Search Theory
    JEL: H2 H30 J0 J01
    Date: 2015–12–18
  16. By: Rajeev Darolia (University of Missouri)
    Abstract: Working has become commonplace among college students; however, this activity can have unexpected financial consequences. Federal formulas implicitly tax the amount of financial aid students are eligible to receive by as much as 50 cents for each marginal dollar of income. This tax creates an incentive for college students to reduce income, though abstruse formulas and the timing of financial aid receipt are likely to limit responses. Using data from a national sample of financially independent college students in the United States, I do not find that students bunch below earnings protection thresholds in a manner that would indicate attempts to avoid reductions in financial aid in total or grants specifically. Moreover, I do not find evidence that implicit income taxes predict lower earnings in a manner that suggests that students meaningfully reduce earnings in response to the tax. Therefore, while economically efficient, the reduction in aid has the potential to burden low-income students who need to both work and receive financial aid in order to afford college expenses.
    Keywords: College financial aid, Working students, Educational finance
    JEL: H52 I22 J22
    Date: 2015–12
  17. By: Jorge Duran; Omar Licandro
    Abstract: National Income and Product Accounts (NIPA) measure real output growth by means of a Fisher ideal chain index. Bridging modern macroeconomics and the economic theory of index numbers, this paper shows that output growth as measured by NIPA is welfare based. In a dynamic general equilibrium model with genreral recursive preferences and technology, welfare depends on present and future consumption. Indeed, the associated Bellman equation provides a representation of preferences in the domain of current consumption and current investment. Applying standard index number theory to this representation of preferences shows that the Fisher-Shell true quantity index is equal to the Divisia index, in turn well approximated by the Fisher ideal index used in NIPA.
    Keywords: Growth measurement, Quantity indexes, NIPA, Fisher-Shell index, Embodied technical change.
    Date: 2015
  18. By: Farrell, Niall
    Abstract: Carbon taxes increase the cost of necessary household energy expenditures. In many developed countries, carbon taxes are regressive as they comprise a greater proportion of a poorer household’s income. Certain socioeconomic groups are more negatively affected by these impacts than others. While inequality of incidence by income group has received great attention in the literature, a gap exists to quantify the inequality associated with socioeconomic characteristics. This information is policy-relevant as it may inform the most effective means to offset negative welfare impacts through changes to taxes and/or social transfers. This paper provides this contribution. First, the inequality of carbon tax incidence across the income spectrum is quantified using the concentration index methodology. A subsequent multivariate decomposition quantifies the contribution each socioeconomic factor makes towards this inequality of incidence. This is carried out for electricity, motor fuel and all other home fuels to elicit variation of socioeconomic incidence by source. While income contributes a great deal towards inequality of incidence for other home fuels, socioeconomic characteristics are the primary determinants of electricity and motor fuel-related carbon tax incidence. The relative importance of each characteristic in determining regressive impacts is quantified and this varies by carbon tax source.
    Date: 2015–11
  19. By: Richard Disney; John Gathergood
    Abstract: We examine the impact of housing wealth on labor supply decisions using data on exogenous local variation in house prices merged into household panel data for Britain. Our estimates are conditioned on variations in local labor demand and income expectations as these may co-determine housing wealth and labor supply. We use renters as a control group and test for the potential endogeneity of tenure and location. We find significant housing wealth effects on labor supply among young married / co-habiting female owners and older male owners, consistent with leisure being a normal good. The size of these effects is economically important. Our estimates imply housing wealth effects have stronger effects then local labor market conditions upon participation decisions for these workers.
    Keywords: Labor supply; Wealth effects; House prices
    Date: 2015
  20. By: Rosta, Miklós
    Abstract: Public management reforms are usually underpinned by arguments that they will make the public administration system more effective and efficient. In practice, however, it is very hard to determine whether a given reform will improve the efficiency and effectiveness of the public administration system in the long run. Here, I shall examine how the concept of the soft budget constraint (SBC) introduced by János Kornai (Kornai 1979, 1986; Kornai, Maskin and Roland 2003) can be applied to this problem. In the following, I shall describe some steps of the Hungarian public administration reforms implemented by the Orbán government from 2010 onward and analyze them, focusing on which measures harden and which ones soften the budget constraint of the actors of the Hungarian public administration system. In the literature of economics, there is some evidence-based knowledge on how to harden/soften the budget constraint, which improves/reduces the effectiveness and hence the efficiency of the given system. My conclusion is that the concept of SBC can significantly contribute to public management studies by deepening our knowledge on what public administration reforms lead to a more efficient and effective public administration system.
    Keywords: Soft budget constraint, public management reforms, Hungary
    JEL: H83
    Date: 2015
  21. By: Erzo F.P. Luttmer; Andrew A. Samwick
    Abstract: Policy uncertainty can reduce individual welfare when individuals have limited opportunities to mitigate or insure against consumption fluctuations induced by the policy uncertainty. For this reason, policy uncertainty surrounding future Social Security benefits may have important welfare costs. We field an original survey to measure the degree of policy uncertainty in Social Security and to estimate the impact of this uncertainty on individual welfare. On average, our survey respondents expect to receive only about 60 percent of the benefits they are supposed to get under current law. We document the wide variation around the expectation for most respondents and the heterogeneity in the perceived distributions of future benefits across respondents. This uncertainty has real costs. Our central estimates show that on average individuals would be willing to forego around 6 percent of the benefits they are supposed to get under current law to remove the policy uncertainty associated with their future benefits. This translates to a risk premium from policy uncertainty equal to 10 percent of expected benefits.
    JEL: D89 H55
    Date: 2015–12
  22. By: Alan L. Gustman; Thomas L. Steinmeier; Nahid Tabatabai
    Abstract: The composition, wealth and employment of male veterans and nonveterans are analyzed for four cohorts from the Health and Retirement Study, ages 51 to 56 in 1992, 1998, 2004 and 2010. Half of the men in the two oldest cohorts served in the military. Only 16 percent of the men in the youngest cohort, the only cohort subject to the All-Volunteer Military, served. One fifth to one third of the members of each cohort who served saw combat, mainly in Viet Nam and in the First Gulf War. Among those 51 to 56 in 1992, veterans were better educated, healthier, wealthier, and more likely to be working than nonveterans. By the 2010 cohort, 51 to 56 year old veterans had lost their educational advantage over nonveterans, were less healthy, less wealthy and less likely to be working. After standardizing in multiple regressions for the influence of major observable characteristics, for the original 1992 HRS cohort the wealth of veterans is no longer higher than the wealth of nonveterans. In contrast, the wealth of veterans from the youngest cohort, those 51 to 56 in 2010, remains about 10 to 13 percent below the wealth of nonveterans from that cohort. There also is a decline from older to younger cohorts of veterans compared to nonveterans in the probability of being not retired, of working more than 35 hours per week, and in the likelihood of holding a job for more than 10 years. Comparisons are made within the group of veterans by years of service, officer rank and other covariates.
    JEL: D31 E21 H55 J14 J26 J32 J45
    Date: 2015–11
  23. By: Frédéric Gavrel (CREM - Centre de Recherche en Economie et Management - CNRS - Centre National de la Recherche Scientifique - Université de Caen Basse-Normandie - UR1 - Université de Rennes 1); Thérèse Rebière (IZA Bonn)
    Abstract: This paper provides an analysis of the social consequences of people seeking to go ahead of the Smiths. All individuals attempt to reach a higher rank than the Smiths, including the Smiths themselves. This attitude gives rise to an equilibrium in which all individuals have equal utilities but unequal (gross) incomes. Due to a rat-race effect, individuals devote too much energy to climbing the social scale. However, laissez-faire equilibrium is an equal-utility constrained social optimum. Conversely, an utilitarian social planner would not choose utility equality. Unexpectedly, this social ambition theory fairly well accounts for empirical intermediate wage inequality.
    Keywords: Going ahead of the Smiths,Social interactions,Well-being,Inequalities,Efficiency
    Date: 2015–12
  24. By: Nathaniel Hendren
    Abstract: This paper provides evidence that individuals' knowledge about their potential future job loss prevents the existence of a private market for unemployment insurance (UI). Using information contained in subjective probability elicitations, I show privately-traded UI policies would be too adversely selected to be profitable, at any price. Moreover, in response to learning about future unemployment, individuals decrease consumption and spouses are more likely to enter the labor market. From a normative perspective, this suggests existing estimates miss roughly 35% of the social value of UI because it also partially insures against the risk of learning one might lose their job.
    JEL: H0
    Date: 2015–12
  25. By: Alain Trannoy (Aix-Marseille University, CNRS and EHESS, France)
    Abstract: We review the literature about inequality and welfare with a particular focus on whether Europe has a special sensitivity to these matters or specific outcomes. We argue that both statements are likely to be true which raises the possibility of a causal link. Europe has relatively good results in terms of inequality and welfare in comparison with other continents and more specifically America, because these issues matter for European people. Still, research needs to be fostered in at least 5 areas that are detailed at the end of this review. A specific attention is devoted to the contribution of other social sciences and natural sciences (cognitive science) to the development of our knowledge for these fields.
    Keywords: Inequality, income inequality, equality of opportunity, welfare, well-being, Europe, the U.S.
    JEL: D63 I31 P52 O51 O52
    Date: 2015–11

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