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Taxes and employment subsidies in optimal redistribution programs
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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 Unpublished .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/...
Abstract
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 | ||||
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Subjects: | H Social Sciences > HC Economic History and Conditions H Social Sciences > HD Industries. Land use. Labor |
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Divisions: | Faculty of Social Sciences > Economics Other > Learning and Development Centre |
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Library of Congress Subject Headings (LCSH): | Taxation, Employment subsidies | ||||
Journal or Publication Title: | Unpublished | ||||
Official Date: | 23 August 2007 | ||||
Dates: |
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Status: | Not Peer Reviewed | ||||
Access rights to Published version: | Open Access (Creative Commons) | ||||
Description: | Unpublished work |
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