The Structural Funds of the European Union
Edited by Massimo Florio
Chapter 14: Derivation of Regional Welfare Weights: An Application to Turkey
Haluk Sezer INTRODUCTION Social welfare weights are constructed for a variety of uses. They can be used for setting out priorities in the allocation of social funds among diﬀerent long term projects with respect to diﬀerent regions (Evans et al., 2005; Kula, 2002) or for making distributional adjustments with respect to gender, age, ethnicity, family status or even health states as long as diﬀerentiation among the diﬀerent groups, for example male and female, is based on income (Weisbrod, 1972). The justiﬁcation for assigning diﬀerent weights for diﬀerent income groups arises out of the underlying social welfare function which relates the concept of diminishing marginal utility to per capita income (HM Treasury, 2003). That is, the higher the level of per capita income, the lower will be the marginal utility associated with it. Therefore the welfare weights attached to low income groups will, ceteris paribus, have relatively high values. In this context, the elasticity of marginal utility with respect to income or consumption (e) plays a critical role in the construction of welfare weights (Blue and Tweeten, 1997). A signiﬁcant portion of the literature concerning social welfare weights and discount rates is devoted to the estimation of e (sometimes referred to as an income ‘inequality aversion parameter’) using diﬀerent approaches. Included in these approaches are studies based on survey methods (Amiel et al., 1998); studies based on life-time consumption behaviour (Blundell et al., 1994); studies using a demand for want-independent commodity model...
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