An investigation into the elasticity of marginal utility

Libardi de Carvalho, Mateus (2018). An investigation into the elasticity of marginal utility. University of Birmingham. Ph.D.

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Abstract

Prioritizing public investments is arguably one of the most important and complex tasks Governments face. In
this thesis, I contribute to such a task by examining the Elasticity of the Marginal Utility (EMU). This parameter
is central to the determination of the Social Discount Rate, which is the discount rate used for Cost-Benefit
Analysis in the public sector. I estimate the EMU using an unprecedentedly large dataset and test variants of the
estimation technique which include National Insurance Contributions and Supernumerary Income. I also test the
robustness of the estimates obtained. I further investigate the validity of the estimates by testing for the first time the key assumption underlying the estimation technique that the degree of progressivity of the income tax schedule represents society's inequality aversion. Next, I examine causality between tax progressivity and income inequality, which is a theme that emerges from testing the assumption mentioned. Finally, I estimate the EMU in different contexts, relating the estimated values and their context-sensitivity to psychological traits. Overall, the results suggest an EMU of 1.5 and that the estimation methodology implemented is acceptable. They also show bidirectional causality between progressivity and inequality, and that the EMU values vary significantly with psychological traits.

Type of Work:

Thesis (Doctorates > Ph.D.)

Award Type:

Doctorates > Ph.D.

Supervisor(s):