Taxation and the redistribution of income (original) (raw)

Income Taxation with Labor Responses

Journal of Public Economic Theory, 2007

When incomes are exogenously given, U. Jakobsson (Journal of Public Economics 5 (1976), 161-168) proved that a progressive tax structure always reduces inequality. We investigate the implications for effective progression of relaxing the assumption of exogenous incomes when individuals have the same preferences but different talents. We extend the standard result and conclude that it is generally impossible to disentangle the respective contributions to inequality reduction of the tax schedule and agents' preferences. For a linear tax schedule to result in less unequally distributed incomes it is sufficient that the elasticity of labor supply be nonincreasing in exogenous income and nondecreasing in productivities. The latter condition proves to be necessary and sufficient when the tax schedule is proportional.

Optimal linear income taxation, redistribution and labour supply

Economic Modelling, 1989

This paper deals with the optimal linear income tax problem. Consideriny an economy composed of two yroups of people with d(fferent waye rates, a model is built for optimal linear taxation for each yroup. Under these differential linear income tax rates, a usefid relationship between tax elasticities of labour supply and an inequality measure is found. Applyiny the model to a Cobb-Dtmylas example )'iehls uarious comparative static results. For instance, under the restriction of transfer payment to the poor only, the optimal linear tax rates will increase whereas the optimal transfer payment will decrease as the .qovernment budyet requirement increases.

A Simple Theory of Optimal Redistributive Taxation with Equilibrium Unemployment

2010

We propose a canonical model of optimal nonlinear redistributive taxation with matching unemployment. In our model, agents are endowed with different skill levels and labor markets are perfectly segmented by skill. The government only observes negotiated wages. More progressive taxation leads to wage moderation that boosts labor demand. We design the optimal nonlinear redistributive tax schedule in the absence of welfare benefits and extensive labor supply margin. Compared to their efficient values, at the optimum gross wages and unemployment are lower. Average tax rates are moreover increasing in wages. The robustness of these properties is also discussed. JEL Classification: H21 H23, J64

Help the Low Skilled or Let the Hardworking Thrive? A Study of Fairness in Optimal Income Taxation

Journal of Public Economic Theory, 2007

In a model where agents have unequal wages and heterogeneous preferences, we study the optimal redistribution via an income tax, when the social objective is based on a combination of efficiency and fairness principles, and when incentive issues are taken into account. We show how some fairness principles entail specific features for the optimal taxes, such as progressivity or tax exemption for incomes below the minimum wage.

Optimal Income Taxation Theory and Principles of Fairness

Journal of Economic Literature, 2018

The achievements and limitations of the classical theory of optimal labor-income taxation based on social welfare functions are now well known. Even though utilitarianism still dominates public economics, recent interest has arisen for broadening the normative approach and making room for fairness principles such as desert or responsibility. Fairness principles sometimes provide immediate recommendations about the relative weights to assign to various income ranges, but in general require a careful choice of utility representations embodying the relevant interpersonal comparisons. The main message of this paper is that the traditional tool of welfare economics, the social welfare function framework, is flexible enough to incorporate many approaches, from egalitarianism to libertarianism. ( JEL D63, H21, H24, J24)

Optimal Income Taxation: Recent Empirical Applications

In this paper we present a critical survey of two "generations" of studies addressing the empirical computation of optimal income taxes. The first generation, from 1971 up to the late '90s, mainly consists of illustrative numerical exercises rather than of empirical applications. The optimal tax-transfer regime that most commonly emerges from these efforts is a negative income tax + a (almost) flat tax. The second generation is characterized by a more definite focus on policy implementations and, relying on extensions or reformulations of Mirrlees's model, attempts to establish a closer connection between theory and data or econometric estimates. We argue that both generations of studies suffer from taking for granted that the solution to the optimal taxation problem must be an analytical one (a "formula"), to be fed with numerical guesses or estimates. As a first consequence, the theoretical models must adopt very restrictive assumptions in order to gene...