Taxes and employment subsidies in optimal redistribution programs
Beaudry, Paul, Blackorby, Charles and Szalay, Dezsö. (2007) Taxes and employment subsidies in optimal redistribution programs. Unpublished .
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Official URL: http://www2.warwick.ac.uk/fac/soc/economics/staff/...
This paper explores how to optimally set taxes 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. We
show that optimal redistribution in this environment involves distorting market employment
upwards for low wage individuals through decreasing wage-contingent employment subsidies,
and distorting employment downwards for high wage individuals through positive and increasing
marginal income tax rates. In particular, we show that whether a person is taxed
or subsidized depends primarily on his wage, with the optimal program involving a cut-off
wage whereby workers above the cutoff are taxed as they increase their income, while workers
earning a wage below the cutoff receive an income supplement as they increase their income.
Finally, we show that the optimal program transfers zero income to individuals who choose
not to work.
|Item Type:||Journal Article|
|Subjects:||H Social Sciences > HC Economic History and Conditions
H Social Sciences > HD Industries. Land use. Labor
|Divisions:||Faculty of Social Sciences > Economics
Other > Learning and Development Centre
|Library of Congress Subject Headings (LCSH):||Taxation, Employment subsidies|
|Journal or Publication Title:||Unpublished|
|Official Date:||23 August 2007|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
Armstrong, M. (1996). Multiproduct nonlinear pricing. Econometrica, 64, pp.51-76.
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