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A comparison of optimal tax policies when compensation or responsibility matter

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  • Jacquet, Laurence
  • Van de Gaer, Dirk

Abstract

This paper examines optimal redistribution in a model with high- and low-skilled individuals with heterogeneous tastes for labor. We compare the extent to which optimal policies based on different normative criteria obey the principles of compensation (for differential skills) and responsibility (for preferences for labor) when labor supply is along the extensive margin. With heterogeneity in skills and preferences, traditional Welfarist criteria including Utilitarianism present unappealing policy recommendations in some scenarios as they fail to take compensation and responsibility issues into account. Criteria from the social-choice literature perform better in this regard in first and second best. More importantly, these equality of opportunity criteria push the second best policy away from an Earned Income Tax Credit and in the direction of a Negative Income Tax.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 95 (2011)
Issue (Month): 11 ()
Pages: 1248-1262

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Handle: RePEc:eee:pubeco:v:95:y:2011:i:11:p:1248-1262

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Web page: http://www.elsevier.com/locate/inca/505578

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Keywords: Optimal income taxation; Equality of opportunity; Heterogeneous preferences for labor;

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References

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Citations

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Cited by:
  1. JACQUET, Laurent & VAN DE GAER, Dirk, 2009. "A comparison of optimal tax policies when compensation or responsibility matter," CORE Discussion Papers 2009064, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. X. Ramos & D. Van De Gaer, 2012. "Empirical Approaches to Inequality of Opportunity: Principles, Measures, and Evidence," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 12/792, Ghent University, Faculty of Economics and Business Administration.
  3. Giacomo Valletta, 2014. "Health, fairness and taxation," Social Choice and Welfare, Springer, vol. 43(1), pages 101-140, June.
  4. Erwin Ooghe & Andreas Peichl, 2011. "Fair and Efficient Taxation under Partial Control: Theory and Evidence," CESifo Working Paper Series 3518, CESifo Group Munich.
  5. Laurence Jacquet & Dirk Van de gaer, 2013. "Politiques fiscales optimales pour les bas revenus et principe de compensation," THEMA Working Papers 2013-04, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  6. Ooghe, Erwin & Peichl, Andreas, 2014. "Fair and efficent taxation under partial control," ZEW Discussion Papers 14-002, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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