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Journal Article

The marginal utility of income

Authors

Publication date

2008

Abstract

In normative public economics it is crucial to know how fast the marginal utility of income declines as income increases. One needs this parameter for cost-bene t analysis, for optimal taxation and for the (Atkinson) measurement of inequality. We estimate this parameter using four large cross-sectional surveys of subjective happiness and two panel surveys. Altogether, the data cover over 50 countries and time periods between 1972 and 2005. In each of the six very different surveys, using a number of assumptions, we are able to estimate the elasticity of marginal utility with respect to income. We obtain very similar results from each survey. The highest (absolute) value is 1.34 and the lowest is 1.19, with a combined estimate of 1.26. The results are also very similar for subgroups in the population. Thus, on the basis of our estimates, the marginal utility of income declines somewhat faster than in proportion to the rise in income.

Published in

Journal of Public Economics

Volume

92 (8-9):1846-1857

DOI

http://dx.doi.org/10.1016/j.jpubeco.2008.01.007

Subjects

Economics, Income Dynamics, and Well Being

Links

http://serlib0.essex.ac.uk/record=b1650552

Notes

Albert Sloman Library Periodicals *restricted to Univ. Essex registered users*

#511587


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