Pareto Weights in Practice: A Quantitative Analysis Across 32 OECD Countries
- Author : Yongsung Chang, Bo Hyun Chang, and Sun-Bin Kim
- Journal : Review of Economic Dynamics / 28, 181-204, 2018
- Link : https://doi.org/10.1016/j.red.2017.08.002
Abstract
We develop a quantitative heterogeneous-agents general equilibrium model that reproduces the income inequalities of 32 countries in the Organization for Economic Co-operation and Development. Using this model, we compute the optimal income tax progressivity and redistribution for each country under the equal-weight utilitarian social welfare function. A policy reform to adopt the optimal progressivity is supported by the majority of the population. Finally, we uncover the Pareto weights in the social welfare functions of each country that justify the current redistribution policy.