Taxes and employment subsidies in optimal redistribution programs
Beaudry, Paul, Blackorby, Charles, 1937- and Szalay, Dezsö. (2007) Taxes and employment subsidies in optimal redistribution programs. Unpublished .
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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|Journal or Publication Title:||Unpublished|
|Date:||23 August 2007|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
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