Value Judgments and Redistribution Policies

Value Judgments and Redistribution Policies

Heterogeneity and diversity are a pervasive aspect of modern societies. Differences in individuals’ preferences, needs, skills, and information are key to explain variation in individuals’ behavior and to anticipate individuals’ responses to policy changes. There is no consensus, however, about how to take these differences into account when evaluating policies. Project VALURED will reexamine this ethical challenge by characterizing the mapping between value judgments—i.e. principles of distributive justice—and redistribution policies. This mapping is tremendously important for welfare analysis and policy design. First, it associates the most desirable policy to each set of value judgments, providing an “ethical menu” to policy design. Second, it gives an ethical identity of each policy proposal, that is, it identifies the value judgments a policymaker endorses when proposing a specific policy. The main objectives of VALURED are to: 1) identify transparent and compelling value judgments that accommodate heterogeneity and diversity; 2) show the implications of these value judgments for the evaluation and design of redistribution policies; 3) characterize welfare criteria that respect individuals’ preferences and account for individuals’ differences in needs, skills, and information; 4) provide new insights for the design of income, capital, and inheritance taxation; 5) develop simple formulas that express optimal policies as a function of observable heterogeneity and ethical parameters. Project VALURED combines welfare economics with public economics. The first part deals with income taxation and addresses the ethical challenges related to individuals’ heterogeneity in preferences, needs, and skills. The second part focuses on capital taxation and addresses individuals’ differences in risk preferences and information. The third part analyses the design of inheritance taxation and addresses the social concerns for intergenerational and intragenerational equity.