Evaluating Real World Income Distributions Behind the Veil of Ignorance - How Risk Averse Do You Have to Be to Prefer Europe Over the US?

31 Pages Posted: 14 Nov 2011

See all articles by Alfons J. Weichenrieder

Alfons J. Weichenrieder

Goethe University Frankfurt - Department of Applied Econometrics and International Economic Policy; Vienna University of Economics and Business; CESifo (Center for Economic Studies and Ifo Institute)

Tasneem Zafar

Goethe University Frankfurt - Faculty of Economics and Business Administration

Date Written: November 14, 2011

Abstract

The paper uses a veil of ignorance approach and income distribution data of developed countries to arrive at inequality corrected income rankings. While a risk neutral individual (based on year 2000 data) would have preferred to be born into the US rather than any European country in our sample except Luxembourg, a coefficient of relative risk aversion of 2 suffices to make several European countries look preferable. The paper also sheds light on the risk corrected average income on a gender basis and scans for times of diminished expectations, i.e. periods where the expected utility of being born into a country has reduced over time.

Keywords: income distribution, veil of ignorance, cross country comparison

JEL Classification: D310, H230

Suggested Citation

Weichenrieder, Alfons J. and Zafar, Tasneem, Evaluating Real World Income Distributions Behind the Veil of Ignorance - How Risk Averse Do You Have to Be to Prefer Europe Over the US? (November 14, 2011). CESifo Working Paper Series No. 3632, Available at SSRN: https://ssrn.com/abstract=1959271 or http://dx.doi.org/10.2139/ssrn.1959271

Alfons J. Weichenrieder (Contact Author)

Goethe University Frankfurt - Department of Applied Econometrics and International Economic Policy ( email )

United States

HOME PAGE: http://www.uni-frankfurt.de/fb02/weichenrieder/

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Tasneem Zafar

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Mertonstrasse 17-25
Frankfurt am Main, D-60325
Germany

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