Regional welfare weights for the UK: England, Scotland, Wales and Northern Ireland

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  • This article was downloaded by: [USM University of Southern Mississippi]On: 12 September 2014, At: 18:58Publisher: RoutledgeInforma Ltd Registered in England and Wales Registered Number: 1072954 Registered office: MortimerHouse, 37-41 Mortimer Street, London W1T 3JH, UK

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    Regional welfare weights for the UK: England,Scotland, Wales and Northern IrelandD. Evans a , E. Kula b & H. Sezer ca The Business School , Oxford Brookes University , Wheatley, Oxford, OX33 1HX, UK E-mail:b School of Economics & Politics , University of Ulster , Jordanstown, Belfast, BT37 0QB,UK E-mail:c The Business School , Oxford Brookes University , Wheatley, Oxford, OX33 1HX, UK E-mail:Published online: 18 Aug 2010.

    To cite this article: D. Evans , E. Kula & H. Sezer (2005) Regional welfare weights for the UK: England, Scotland, Walesand Northern Ireland, Regional Studies, 39:7, 923-937, DOI: 10.1080/00343400500289937

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  • Regional Studies, Vol. 39.7, pp. 923937, October 2005

    Regional Welfare Weights for the UK: England,Scotland, Wales and Northern Ireland

    D. EVANS*, E. KULA and H. SEZER**The Business School, Oxford Brookes University, Wheatley, Oxford OX33 1HX, UK. Emails: djevans@brookes.ac.uk

    and hsezer@brookes.ac.ukSchool of Economics & Politics, University of Ulster at Jordanstown, Belfast BT37 0QB, UK. Email: ie.kula@ulster.ac.uk

    (Received August 2003: in revised form November 2004)

    E D., K E. and S H. (2005) Regional welfare weights for the UK: England, Scotland, Wales and NorthernIreland, Regional Studies 39, 923937. In relation to public spending and regional policy, the importance of distributional issuesis stressed, and regional welfare weights are derived from an appropriate underlying social welfare function. Estimates of theseweights are then provided for the four countries comprising the UK. Welfare weights now have a very high policy profilefollowing the special emphasis placed by the UK Treasury, in its recently revised guidance on appraisal and evaluation ingovernment, on the assessment of the distributional impacts of social projects and policies. From an empirical perspective, thecritical component of each welfare weight measure is the elasticity of marginal utility of income (e). Alternative estimationapproaches based on demand analysis and income tax data are used to determine e, and a preferred measure of 1.60 emerges.The resulting regional welfare weights are then compared with recent patterns of per-capita regional public expenditure in theUK. The paper concludes by emphasizing the scope for further empirical work on welfare weights and regional policy inrelation to both the UK and the European Union.

    Welfare weights Marginal utility UK

    E D., K E. et S H. (2005) Les ponderations regionales et la protection sociale au Royaume-Uni: lAngleterre,lEcosse, les pays de Galles et lIrlande du Nord, Regional Studies 39, 923937. On souligne limportance des questions dedistribution par rapport aux depenses publiques et a la politique regionale et, a partir dune fonction de protection sociale sous-jacente appropriee, on produit des ponderations regionales. On fournit des estimations de ces ponderations pour ce qui est desquatre pays qui constituent le Royaume-Uni. A lheure quil est, les ponderations relatives a la protection sociale sont tres envue dans le domaine politique, etant donne limportance accordee par le ministere des Finances au Royaume-Uni, dans sesconseils recemment modifies sur levaluation par le pouvoir, a levaluation des impacts sur la distribution des projets et despolitiques sociaux. Du point de vue empirique, la composante critique de chaque ponderation relative a la protection sociale estlelasticite de lutilite marginale du revenu (e). On emploie dautres approches a lestimation fondees sur lanalyse par la demandeet les donnees de limpot sur les revenus afin de determiner e. Il en resulte une mesure preferee de 1,6. On compare lesponderations relatives a la protection sociale qui en resultent a des distributions recentes des depenses publiques regionales partete au Royaume-Uni. Pour conclure, larticle souligne les possibilites pour la recherche empirique ulterieure sur les ponderationsrelatives a la protection sociale et a la politique regionale par rapport et au Royaume-Uni, et a lUnion europeenne.

    Ponderations relatives a la protection sociale Utlilite marginale Royaume-Uni

    E D., K E. und S H. (2005) Regionale Wohlfahrtslasten fur das UK: England, Schottland, Wales und Nordirland,Regional Studies 39, 923937. Es wird die Bedeutung von Verteilungsfragen im Verhaltnis zu offentlichen Ausgaben undRegionalpolitik betont, und regionale Wohlfahrtslasten von geeigneten zugrundliegenden Sozialeinrichtungen abgeleitet. Dannwerden Veranschlagungen dieser Lasten fur die vier Lander des UK vorgelegt. Nachdem das Finanzministerium des UK inseinen kurzlich uberarbeiteten Richtlinien zur Einschatzung und Beurteilung von Regierungsangelegenheiten besonderesGewicht auf die Beurteilung der Verteilungsauswirkungen von Sozialvorhaben und-bestrebungen gelegt hat, werden Wohfahrts-kosten jetzt bei politischen Bestrebungen sehr stark beachtet. Aus empirischer Perspektive gesehen ist die kritische Komponentejeder Wohlfahrtsmanahme die Elastizitat der Grenznutzung von Einkommen (e). Alternative, auf Nachfragenanalysen undEinkommenssteurraten gestutzte Einschatzungsansatze werden zur Bestimmung von e benutzt, und ergeben ein bevorzugtesMa von 1,6. Die resultierenden Wohlfahrtslasten werden dann mit neueren Mustern der regionalen offentlich pro-Kopfausgabenim UK verglichen. Der Aufsatz schliet mit einem Hinweis auf Spielraum fur weitere empirische Arbeit uber Wohlfahrtslastenund Regionalpolitik sowohl im Bezug auf das UK, als auch die EU.

    Wohlfahrtslasten Grenznutzung UK

    0034-3404 print/1360-0591 online/05/070923-15 2005 Regional Studies Association DOI: 10.1080/00343400500289937

    http://www.regional-studies-assoc.ac.uk

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  • 924 D. Evans et al.

    E D., K E. y S H. (2005) Indices regionales de bienestar social en el Reino Unido: Inglaterra, Escocia, Pas deGales e Irlanda del Norte, Regional Studies 39, 923937. Este artculo enfatiza la importancia de cuestiones de tipo distribucionalcon relacion a los gastos publicos y la poltica regional, y se extraen ndices regionales de bienestar social a partir de una funcionde bienestar social subyacente. A continuacion, se ofrecen estimaciones de estos ndices para los cuatro pases que integran elReino Unido. Los ndices de bienestar social gozan de un alto perfil poltico a raz del enfasis que el Departamento del Tesorodel Reino Unido les ha otorgado en la revision de las directrices sobre los procesos de evaluacion adoptados por el gobierno, enlo que respecta a la evaluacion del impacto de caracter distribucional de proyectos y polticas sociales. Desde un punto de vistaemprico, el componente crtico de cada una de las medidas de los ndices de bienestar social es la elasticidad de la utilidadmarginal de los ingresos (e). Se utilizan metodos de estimacion alternativos basados en el analisis de la demanda y datos sobreimpuestos salariales con objeto de determinar e, dando como resultado una medida preferente de 1,60. Subsiguientemente, losndices regionales de bienestar social resultantes se comparan con los patrones recientes de gastos publicos regionales per capitaen el Reino Unido. El artculo concluye enfatizando el margen que existe para llevar a cabo mas trabajo emprico sobre losndices de bienestar social y sobre cuestiones de poltica regional en el ambito del Reino Unido y la Union Europea.

    Indices de bienestar social Marginal de los ingresos Reino Unido

    JEL classifications: D60, D61, R10

    INTRODUCTION distributional issues are now being taken very seriouslyat policy level in the UK (H . M. T, 2003,

    The importance of distributional issues related to public especially annex 5, pp. 9196). This governmentsector spending has long been a matter of debate in the emphasis on distributional welfare weights shows aeconomic literature especially in costbenefit analysis, determination to take equity issues formally intowhich is an application of welfare economics whose account in costbenefit analysis wherever it is judgedaim is the maximization of social well-being from a to be feasible. The government has identified severalseries of options. Some economists contend that cost specific distributional dimensions that are worthy ofbenefit analysis should be conducted under the assump- attention in the appraisal of social projects and policies.tion that the existing income distribution is optimal These include income, age, gender, ethnicity, religion(M, 1969; H, 1972). Even if it is and region. This paper focuses on broad regional issuesnot optimal, income distribution should be handled in in the UK and the application of appropriate regionala variety of different ways, for instance through the tax welfare weights.system. However, if a particular project imposes a Welfare weights attached to different income groupsburden on a section of the community, then a Kaldor can change by income levels, prices and taxation. Non-Hicks compensation scheme should be implemented. recognition of these factors on the well-being of diverseOther than that, there is no need to deal with wider groups is unlikely to be effective in achieving the sociallydistributional issues. desirable results in the community (R , 1980;

    At the other end of the spectrum, some economists C , 1983; M and R, 1989). Thebelieve that distributional issues should form an integral present paper considers distributional weights from thepart of the public sector spending schemes, including viewpoint of regional incomes in the UK by focusing

    on the four countries of the Union: England, Wales,the appraisal of communal projects, so that specificScotland and Northern Ireland. Regional expenditurewelfare weights can be used to achieve equity andhas always been an important issue in the UK as well asefficiency objectives simultaneously (P andin the European Union since its creation. In fact, variousT, 1965; L , 1972; S , 1972; S ,regions of the UK have received substantial aids in1977). Then one task for the economic profession is tovarious forms from the European Union as well as fromhelp the government in the estimation of various setscentral government. Recent enlargement of the Euro-of welfare weights so that they can, if desired, bepean Union to include less well-off countries on theused in the allocation of public funds. L andContinent has created a debate about Europe-wideG (1994) consider that distribution by way ofregional spending, which is likely to intensify in futuretaxation or subsidy may not happen, even if it shouldyears. After calculating welfare weights for the UK, ahappen. Then there may be a case for the use of welfarecomparison is made with recent regional spendingweights to decide whether or not public spendingpatterns on income and employment-generating activi-meets greater social objectives. According to Bties with a view to finding out to what extent theyand T (1997), a good number of mainstreammatch.economists in the past disregarded the equity criterion

    by focusing exclusively on economic efficiency and theREGIONAL WELFARE WEIGHTStime is ripe for taking distributional issues seriously.

    It is clear from the UK Treasurys latest guidance on S (1989) argues that in order to achievemaximum welfare gain in the community, public moneyappraisal and evaluation in central government that

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  • Regional Welfare Weights for the UK 925

    should be distributed between individuals based onSW;

    n

    i1Ui (2)marginal utility of income. W (1972) contends

    that welfare weights can focus on a number of criteriasuch as gender, age, ethnicity, religion, family status where Ui is the utility of the ith region with utilityand regions. Uneven distribution of income between being a function of income.regions has always been an important concern for the According to S and V T (1975),UK and the European Union, partly for the purpose if one assumes that regional utility functions have theof reducing migration from the deprived areas towards same algebraic form with the rate at which marginalthe better-off regions. In this respect, individual govern- utility declines being constant, then one can havements, as well as the European Union as a whole, have the following representative iso-elastic regional utilitybeen especially supporting agriculture, fisheries and function:forestry in the rural sector where income levels tendto be low. Public support for relatively poor rural

    Ui(Y1ei 1)

    (1e)(3)communities is even a constitutional objective in some

    countries, e.g. the Republic of Ireland (Article 45 ofwhere Yi is the per-capita income in region i and e isthe Irish Constitution).the absolute value of the elasticity of marginal utility ofThe main theoretical rationale for giving greaterincome. This iso-elastic utility function has the standardweights to poor regions is the concept of diminishingproperties of monotonicity and diminishing marginalmarginal utility of income, which is one of t...

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