Is it fair to 'make work pay'?

Roland Iwan Luttens, Erwin Ooghe

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

We present a new fair allocation, coined a 'Pareto-efficient and Shared Resources Equivalent' allocation, which compensates for different productive skills, but not for different tastes for working. We illustrate the optimal second-best allocation in a discrete Stiglitz economy. The question of whether we should have regressive or progressive taxes for low earners crucially depends on whether the low-skilled have a strictly positive skill or zero skill. Our simulation results suggest that 'making work pay' policies can be optimal, according to our fairness criterion, but only in the unreasonable case in which all the unemployed are never willing to work.

Original languageEnglish
Pages (from-to)599-626
Number of pages28
JournalEconomica
Volume74
Issue number296
DOIs
Publication statusPublished - 2007

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Shared resources
Simulation
Pareto
Progressive taxes
Fair allocation
Fairness
Pay policies

Cite this

Luttens, Roland Iwan ; Ooghe, Erwin. / Is it fair to 'make work pay'?. In: Economica. 2007 ; Vol. 74, No. 296. pp. 599-626.
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Is it fair to 'make work pay'? / Luttens, Roland Iwan; Ooghe, Erwin.

In: Economica, Vol. 74, No. 296, 2007, p. 599-626.

Research output: Contribution to JournalArticleAcademicpeer-review

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