Income Distribution in Europe and its Effect on Investment Priorities

Year 2012, Volume: 1 Issue: 1, 90 - 100, 01.06.2012

Erhun Kula

Abstract

This paper focuses on the measurement of regional priorities and their effect on the allocation of regional funds in the European Union (EU) looking at the less well of countries. The application of distributional welfare weights in the appraisal of development projects is emphasized in the guidance provided by the European Commission (EC). Application of such weights in a regional context is an important consideration given that the EC has provided a large budget of over €300 bn to finance investment projects in the European Union over the period 2007-2013. The main beneficiaries of these funds are the 12 less well off new member states some of whom have suffered considerably during the latest economic crisis.Living standards in the new member states, based on the gross domestic product (GDP) exhibit substantial regional variation, and thus it is of interest to explore the potential funding allocation impact resulting from the application of regional welfare weights in the social appraisal of investment projects in the EU-12 region. This paper develops a suitable model for the application of regional welfare weights in cost benefit analysis and then applies it to a number of new EU member states and one negotiating country, Turkey

Keywords

European Structural Funds, Regional Priorities, Income Distribution, Economic Development.

References

• Blue, E. N. and C. Tweeten (1997). “The estimation of marginal utility of income for ap- plication to agricultural policy analysis”. Agricultural Economics, 16, 155-69.
• Evans, D. (2004). “The elasticity of marginal utility of consumption; estimates for 20 OECD countries”. Fiscal Studies, 26, 197-224.
• Evans, D., Kula, E and Sezer, H, (2005). “Regional welfare weights in the UK; England, Scotland, Wales and Northern Ireland”. Regional Studies, 39, 923-937.
• Evans, D., Kula, E. (2011). Social discount rate and welfare weights for public invest- ment decisions under budgetary restriction: The Case of Cyprus. Fiscal Studies, 32, 73-107.
• Fisher, I. (1927). A statistical method for measuring marginal utility and justice of a progressive income tax. in W. Fellner (eds.), Ten Economic Essays Contributed in Honour of J. Bates Clark, London: Macmillan.
• HM Treasury (2003). Appraisal and Evaluation in Central Government (Green Book), London, Her Majesty’s Stationary Office.
• Layard, R. and Glaister S. (1994). Cost-Benefit Analysis, 2nd ed., Cambridge University Press, England.
• Pearce, D. (1983). Cost-Benefit Analysis, 2nd ed. London, Macmillan.
• Stigler G. (1972). The adoption of marginal utility theory. History of Political Economy, 4, 573-86.