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Fair Income Tax

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Author Info
MARC FLEURBAEY
FRANÇOIS MANIQUET

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Abstract

In a model where agents have unequal skills and heterogeneous preferences over consumption and leisure, we look for the optimal tax on the basis of efficiency and fairness principles and under incentive-compatibility constraints. The fairness principles considered here are: (1) a weak version of the Pigou-Dalton transfer principle; (2) a condition precluding redistribution when all agents have the same skills. With such principles we construct and justify specific social preferences and derive a simple criterion for the evaluation of income tax schedules. Namely, the lower the greatest average tax rate over the range of low incomes, the better. We show that, as a consequence, the optimal tax should give the greatest subsidies to the working poor (the agents having the lowest skill and choosing the largest labour time). Copyright 2006 The Review of Economic Studies Limited.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-937X.2006.00369.x
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Publisher Info
Article provided by Blackwell Publishing in its journal Review of Economic Studies.

Volume (Year): 73 (2006)
Issue (Month): 1 (01)
Pages: 55-83
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Handle: RePEc:bla:restud:v:73:y:2006:i:1:p:55-83

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Fleurbaey, Marc & Maniquet, Francois, 1996. "Fair allocation with unequal production skills: The No Envy approach to compensation," Mathematical Social Sciences, Elsevier, vol. 32(1), pages 71-93, August. [Downloadable!] (restricted)
  2. Sadka, Efraim, 1976. "On Income Distribution, Incentive Effects and Optimal Income Taxation," Review of Economic Studies, Blackwell Publishing, vol. 43(2), pages 261-67, June. [Downloadable!] (restricted)
  3. Francois Maniquet & Yves Sprumont, 2002. "Fair Production and Allocation of an Excludable Nonrival Good," Economics Working Papers 0014, Institute for Advanced Study, School of Social Science. [Downloadable!]
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  4. Seade, J. K., 1977. "On the shape of optimal tax schedules," Journal of Public Economics, Elsevier, vol. 7(2), pages 203-235, April. [Downloadable!] (restricted)
  5. Ebert, Udo, 1992. "A reexamination of the optimal nonlinear income tax," Journal of Public Economics, Elsevier, vol. 49(1), pages 47-73, October. [Downloadable!] (restricted)
  6. M. Fleurbaey & F. Maniquet, 2000. "Fair Social Orderings With Unequal Production Skills," THEMA Working Papers 2000-17, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise. [Downloadable!]
  7. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Blackwell Publishing, vol. 38(114), pages 175-208, April. [Downloadable!] (restricted)
  8. Fleurbaey, Marc & Suzumura, Kotaro & Tadenuma, Koichi, 2000. "Informational Requirements for Social Choice in Economic Environments," Discussion Paper 2, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  9. M. Fleurbaey & A. Trannoy, 2000. "The Impossibility of a Paretian Egalitarian," THEMA Working Papers 2000-26, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise. [Downloadable!]
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  10. Fleurbaey,M., 2001. "The Pazner-Schmeidler social ordering : a defense," Working Papers 328, Bielefeld University, Institute of Mathematical Economics. [Downloadable!]
  11. M. Fleurbaey & F. Maniquet, 2008. "Fair social orderings," Economic Theory, Springer, vol. 34(1), pages 25-45, January. [Downloadable!] (restricted)
  12. Dirk Van de gaer & Marc Fleurbaey & Walter Bossert, 1999. "Responsibility, talent, and compensation: A second-best analysis," Review of Economic Design, Springer, vol. 4(1), pages 35-55. [Downloadable!] (restricted)
  13. Fleurbaey, Marc & Suzumura, Kotaro & Tadenuma, Koichi, 2000. "Informational Requirements for Social Choice in Economic Environments," Discussion Papers 2000-07, Graduate School of Economics, Hitotsubashi University. [Downloadable!]
  14. Diamond, Peter A, 1998. "Optimal Income Taxation: An Example with a U-Shaped Pattern of Optimal Marginal Tax Rates," American Economic Review, American Economic Association, vol. 88(1), pages 83-95, March. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Phillippe Choné & Guy Laroque, 2008. "Optimal taxation in the extensive model," IFS Working Papers W08/08, Institute for Fiscal Studies. [Downloadable!]
  2. Marie-Laure Michaud, 2004. "Welfare and the Labour Market in the EU," Occasional Papers 07, European Network of Economic Policy Research Institutes. [Downloadable!]
  3. Marc Fleurbaey & Philippe Mongin, 2004. "The News of the Death of Welfare Economics is Greatly Exaggerated," Working Papers hal-00242931_v1, HAL. [Downloadable!]
    Other versions:
  4. Yukihiro Nishimura, 2008. "Envy Minimization in the Optimal Tax Context," Working Papers 1178, Queen's University, Department of Economics. [Downloadable!]
  5. Marc Fleurbaey, 2007. "Social choice and the indexing dilemma," Social Choice and Welfare, Springer, vol. 29(4), pages 633-648, December. [Downloadable!] (restricted)
  6. Chambers, Christopher P. & Hayashi, Takashi, . "Money metric utilitarianism," Working Papers 1295, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  7. Rolf Aaberge and Ugo Colombino, 2006. "Designing Optimal Taxes with a Microeconometric Model of Household Labour Supply," Discussion Papers 475, Research Department of Statistics Norway. [Downloadable!]
    Other versions:
  8. Aaberge, Rolf & Flood, Lennart, 2008. "Evaluation of an In-Work Tax Credit Reform in Sweden: Effects on Labor Supply and Welfare Participation of Single Mothers," IZA Discussion Papers 3736, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  9. Giacomo, VALETTA, 2007. "A fair solution to the compensation problem," Discussion Papers (ECON - Département des Sciences Economiques) 2007038, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]
  10. R. I. Luttens & E. Ooghe, 2005. "Is it fair to “make work pay”?," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/283, Ghent University, Faculty of Economics and Business Administration. [Downloadable!]
    Other versions:
  11. Marc Fleurbaey, 2003. "Social Welfare, Priority to the Worst-Off And the Dimensions of Individual Well-Being," IDEP Working Papers 0312, Institut d'economie publique (IDEP), Marseille, France. [Downloadable!]
  12. Fernando Cabrales Gómez & Ana I. Fernández Sainz & Federico Hans Grafe Arias, 2004. "¿Es necesaria una política redistributiva del ingreso en Chile? Evidencia Empírica desde el principio de igualdad de oportunidades," BILTOKI 200401, Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística). [Downloadable!]
  13. Giacomo Valletta, 2009. "A fair solution to the compensation problem," Social Choice and Welfare, Springer, vol. 32(3), pages 455-478, March. [Downloadable!] (restricted)
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