Welfare analysis of fiscal and social security reforms in Europe: does the representation of family decision processes matter?

Welfare analysis of fiscal and social security reforms in Europe: does the representation of family decision processes matter?

This project focuses on the quantitative evaluation of reforms of fiscal and social security reforms. These reforms generally have an impact on living conditions and on access to resources and affect the relationships between both the generations and the sexes, in ways that often differ from the intentions behind these reforms. We shall start with a comparative study of different fiscal systems in Europe, including social security aspects (Denmark, France, Germany, Italy, Spain, and the United Kingdom), stressing the impacts a reform can have on consumption behaviour, on the labour supply of women and men, and on the within-family distribution of wealth and welfare, for each fiscal system. In investigating these questions, an appealing representation of the decision processes of the household is the collective representation, introduced by Chiappori (1988, 1992). This type of model accounts for the presence of multiple decision centres within the household, in contrast with the traditional, or unitary, representation. This opens up the possibility to infer aspects of the within-household welfare implications of policy changes. A main contribution of this study will be a concrete comparison of the implications, for policy recommendations, of the choice between these two representations mentioned above. It will use realistic simulations taking account of the characteristics of each country. Our goal is to quantify the distortions that may affect policy recommendations obtained with the unitary representation, in the effective situation of each country, and for recent reforms or for proposals currently under discussion. The data will be simulated with a model accounting for the presence of multiple decision centres within the household (collective model). Subsequently, the data will be used to estimate for each country a set of unitary models for consumption and household labour supplies, possibly along the lines of Van Soest (1995). This will allow us to compare the results of policy evaluations obtained with both types of models on a number of dimensions, including both positive (impact on behaviour) and normative aspects (impact on individual welfare and on household welfare, and impact on inequality measures). The question we address here is: how large is concretely the size of errors committed when basing policy recommendations for the particular situations of European countries on estimations from the unitary model? If these distorsions turn out to be large, this would justify putting more effort in the empirical use of the collective model.

Cooperation partner
Catholic University of Leuven, Leuven, BE // The University of Chicago, Chicago, US // University of Copenhagen, Kopenhagen, DK // Université Louis Pasteur, Straßbourg, FR // Département et Laboratoire d'Economie Théorique et Appliquée (DELTA), École Normale Supérieure, Paris, FR // L'Institut National de la Recherche Agronomique (INRA), Paris, F, Laboratoire D'economie Applique (LEA), Paris, FR // Internationaler Währungsfonds, Washington, D.C., US // The Danish National Institute for Social Research, Kopenhagen, DK // Keele University, Keele, UK