Existing research documents a log-linear relationship between income and subjective well-being, known as the income–well-being gradient. Using data from millions of Americans, mainly from the Gallup Daily Poll, we find significant racial differences in this gradient. Whites exhibit a steeper income–well-being gradient than Blacks, Hispanics, and Asians. These gradient differences remain after accounting for demographic, socioeconomic, neighborhood, and relative income factors. Additional analyses reveal similar racial heterogeneity in (i) other well-being measures, (ii) expected future well-being, and (iii) the age–well-being relationship. These findings underscore the important role of race in the well-being relationships and the need to better understand the dimensions of heterogeneity in the income–well-being gradient.

This paper investigates the effect of taxation of polluting products and redistribution on pollution, income and welfare inequalities. We consider a two-sector Ramsey model with a green and a polluting good, two types of households and a subsistence level of consumption for the polluting good. The environmental tax is always effective in reducing pollution regardless of the level of subsistence consumption. However, this level, together with the redistribution rate, matters at the individual level as it shapes the impact of the environmental policy on individual consumption and welfare. Looking at the stability properties of the economy, a high subsistence level of polluting consumption leads to instability or indeterminacy of the steady state, while the environmental externality reduces the scope for indeterminacy. Increasing the tax rate and redistributing more to the worker affect the occurrence of indeterminacy and instability. Considering the subsistence level of consumption and the level of redistribution among households are of importance as it determines the effects of environmental tax policy in the long term and the stability of the economy in the short term.

In meritocratic societies, inequality is considered just if it reflects factors within but not outside individuals’ control. However, individuals often benefit differentially from other people’s efforts. Such passive inequality is simultaneously just and unjust by meritocratic standards, confronting meritocrats with a dilemma. We conducted an experiment with a representative US sample to investigate how people deal with this dilemma. In the experiment, impartial spectators redistribute payments between pairs of individuals. We vary whether initial payments result from luck or effort and whether spectators redistribute between individuals who worked themselves or individuals who benefited from the work of real-life friends. We find that spectators treat inequality based on the efforts of individuals’ friends as if individuals had worked themselves, and very different from inequality resulting from differential luck. This indicates that most people accept inequality if it is merited at some stage, which may explain opposition to redistributive policies.

Longevity risk is threatening the sustainability of traditional pension systems. To deal with this issue, decumulation strategies alternative to annuities have been proposed in the literature. However, heterogeneity in mortality experiences in the pool of policyholders due to socio-economic classes generates inequity, because of implicit wealth transfers from the more disadvantaged to the wealthier classes. We address this issue in a Group Self-Annuitization (GSA) scheme in the presence of stochastic mortality by proposing a redistributive GSA scheme where benefits are optimally shared across classes. The expected present values of the benefits in a standard GSA scheme show relevant gaps across socio-economic groups, which are reduced in the redistributive GSA scheme. We explore sensitivity to pool size, interest rates and mortality assumptions.

In this article, I defend and expand on what I call the republican view of the Kantian state’s duty to the poor. Against minimalist sceptics, I argue that the republican view makes a compelling case for the state’s duty with conceptual resources internal to Kant’s philosophy of right. Against maximalist critics, I argue that the republican view need not limit redistribution to poverty relief and that it provides resources to overcome an important interpretative challenge facing attempts at justifying more expansive redistribution on Kantian grounds.

Throughout this themed section we have examined a number of key social policy challenges in relation to the role that taxation measures and choices play, or can play, in shaping responses to them. The following is a list of learning and research resources on topics that are central to these themes. For the most part, we have focused on recently published contributions.

This article problematises two concepts frequently used in debates about resource allocation.

The term ‘system’ evokes a ‘unified whole’ and emphasises interaction among the different component parts within the system. However, the notion of a tax system insulated from the world around it obstructs an analysis of the ways in which interactions of tax arrangements with other elements of society shape distributional outcomes. The article argues that tax arrangements need to be understood as an open system.

Next, the article problematises the concept of ‘redistribution’ by examining the limitations of current approaches to redistribution. First, pre-distribution, referring to decisions about tax expenditures, is often overlooked, although it reflects allocation decisions that not only benefit recipients but also result in foregone revenues that might have been used for redistribution. Second, analyses of redistribution often focus exclusively on income. Third, taxes shape the kind of society we have in ways that limit future possibilities of redistribution. The article proposes the concept of structural redistribution to denote redistribution, which goes beyond redistribution among groups to change the nature of society.

We examine how taxes impact charitable giving and how this relationship is affected by the degree of wasteful government spending. In our model, individuals make donations to charities knowing that the government collects a flat-rate tax on income (net of charitable donations) and redistributes part of the tax revenue. The rest of the tax revenue is wasted. The model predicts that a higher tax rate increases charitable donations. Surprisingly, the model shows that a higher degree of waste decreases donations (when the elasticity of marginal utility with respect to consumption is high enough). We test the model’s predictions using a laboratory experiment with actual donations to charities and find that the tax rate has an insignificant effect on giving. The degree of waste, however, has a large, negative and highly significant effect on giving.

We study the distributional preferences of Americans during 2013–2016, a period of social and economic upheaval. We decompose preferences into two qualitatively different tradeoffs—fair-mindedness versus self-interest, and equality versus efficiency—and measure both at the individual level in a large and diverse sample. Although Americans are heterogeneous in terms of both fair-mindedness and equality-efficiency orientation, we find that the individual-level preferences in 2013 are highly predictive of those in 2016. Subjects that experienced an increase in household income became more self-interested, and those who voted for Democratic presidential candidates in both 2012 and 2016 became more equality-oriented.

We perform an experiment which provides a laboratory replica of some important features of the welfare state. In the experiment, all individuals in a group decide whether to make a costly effort, which produces a random (independent) outcome for each one of them. The group members then vote on whether to redistribute the resulting and commonly known total sum of earnings equally amongst themselves. This game has two equilibria, if played once. In one of them, all players make effort and there is little redistribution. In the other one, there is no effort and nothing to redistribute. A solution to the repeated game allows for redistribution and high effort, sustained by the threat to revert to the worst of these equilibria. Our results show that redistribution with high effort is not sustainable. The main reason for the absence of redistribution is that rich agents do not act differently depending on whether the poor have worked hard or not. The equilibrium in which redistribution may be sustained by the threat of punishing the poor if they do not exert effort is not observed in the experiment. Thus, the explanation of the behavior of the subjects lies in Hobbes, not in Rousseau.