Intergenerational inequality

Bertrand Maitre, Ivan Privalko, Barra Roantree

Personal income tax design and background-related earnings advantages: evidence from Italy and Poland

PurposeThe authors analyse how the association between parental background and adult children's earnings changes when net rather than gross children's earnings are considered and disentangle what such changes depend on: differences between pre and after taxes earnings inequality or reranking of individuals along the earnings distribution before and after taxes.Design/methodology/approachUsing data from European Union Statistics on Income and Living Conditions (EU-SILC) 2011, the authors focus on two large European countries, Italy and Poland, with comparable levels of inequality and background-related earnings premia but very different personal income tax (PIT) design and estimate – at both the mean and the deciles of the earnings distribution – the association between parents' characteristics and children's gross and net earnings.FindingsThe authors find that in Italy the PIT reduces the magnitude of the association between parental background and adult children's earnings at the top of the distribution, while no effects emerge for Poland, and the reduction is mostly due to a decrease in earnings inequality rather than to a re-ranking of children along the distribution. The findings are confirmed when the authors simulate the introduction of a “quasi flat tax” regime in Italy.Social implicationsThe findings suggest that the higher the tax progressivity, the higher the background-related inequality reduction and the lower the intergenerational association, signalling that the degree of progressivity amongst children may be an effective weapon to reduce intergenerational inequality.Originality/valueIn the literature on intergenerational inequality, the role of taxes is usually overlooked. In this paper, the authors try to fill this gap and enquire how the PIT design affects the association between parental background and adult children's earnings.

Discounting and Climate Policy

The social rate of discount is a crucial driver of the social cost of carbon (SCC), that is, the expected present discounted value of marginal damages resulting from emitting one ton of carbon today. Policy makers should set carbon prices to the SCC using a carbon tax or a competitive permits market. The social discount rate is lower and the SCC higher if policy makers are more patient and if future generations are less affluent and policy makers care about intergenerational inequality. Uncertainty about the future rate of growth of the economy and emissions and the risk of macroeconomic disasters (tail risks) also depress the social discount rate and boost the SCC provided intergenerational inequality aversion is high. Various reasons (e.g., autocorrelation in the economic growth rate or the idea that a decreasing certainty-equivalent discount rate results from a discount rate with a distribution that is constant over time) are discussed for why the social discount rate is likely to decline over time. A declining social discount rate also emerges if account is taken from the relative price effects resulting from different growth rates for ecosystem services and of labor in efficiency units. The market-based asset pricing approach to carbon pricing is contrasted with a more ethical approach to policy making. Some suggestions for further research are offered.

Voting on Behalf of a Future Generation: A Laboratory Experiment

This paper investigates a new voting rule wherein some people are given extra votes to serve as proxies for future generations. We predict that this voting scheme affects the voting behavior of those who do not receive an extra vote (i.e., single-ballot voters) because they are less likely to become a pivot, while proxy voters are expected to behave in support of the future generation. To test this prediction, we compare three scenarios wherein single-ballot voters would cast a vote: (a) one-voter-one-vote scenario wherein all voters cast only a single ballot; (b) a standard proxy-voting scenario wherein other voters cast two ballots, and the second vote is to cast for the benefit of a future generation; and (c) a non-proxy-voting scenario wherein other voters cast two ballots with no explanation for the second vote. The result shows that single-ballot voters are less inclined to vote for the future-oriented option in (c) than in (a). This indicates the potential drawback of the new voting scheme. However, there is no difference in the single-ballot voters’ decision between (a) and (b), indicating that the explanation of the second ballot as the proxy is important for reducing the intergenerational inequality through this voting reform.