Beaudry, Paul and Blackorby, Charles (2004) Taxes and employment subsidies in optimal redistribution programs. Working Paper. Coventry: University of Warwick, Department of Economics. Warwick economic research papers (No.766).

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Abstract

This paper explores how to optimally set tax and transfers when taxation authorities: (1) are uninformed about individuals’ value of time in both market and non-market activities and (2) can observe both market-income and time allocated to market employment. In contrast to much of the optimal income taxation literature, we show that optimal redistribution in this environment involves distorting market employment upwards for low net-income individuals through phased-out wage-contingent employment subsidies, and distorting employment downward for high net-income individuals through positive and increasing marginal income tax rate. We also show that workfare may also be used as part of an optimal redistribution program.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HJ Public Finance
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Taxation, Information asymmetry, Labor supply -- Effect of taxation on, Distribution (Economic theory)
Series Name:	Warwick economic research papers
Publisher:	University of Warwick, Department of Economics
Place of Publication:	Coventry
Official Date:	February 2004
Dates:	Date Event February 2004 Completion
Number:	No.766
Number of Pages:	61
Institution:	University of Warwick
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access (Creative Commons)

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