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Optimal Taxes and Transfers under Partial Information

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  • Stefan Homburg

    ()

  • Tim Lohse

    ()
    (University of Hannover)

Abstract

Effective from 2005, benefits for long-term unemployed have been reduced in Germany to the level of social assistance. This measure reflects the view that "all who are able to work, should work" - a view which makes sense only if the government can distinguish the disabled from the productive. In this paper we augment the standard model of optimal taxation, where the governemnt has no information about individual productivities, by this very assumption: Partial information means that the government can distinguish the disabled from the productive, but cannot distinguish among the different productive types. An interesting proposition about the shape of optimal tax-transfer schemes under partial information is derived. Moreover, it is shown that unemployment on the side of the productive poor may still by optimal.

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Bibliographic Info

Article provided by Justus-Liebig University Giessen, Department of Statistics and Economics in its journal Journal of Economics and Statistics.

Volume (Year): 225 (2005)
Issue (Month): 6 (November)
Pages: 622-629

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Handle: RePEc:jns:jbstat:v:225:y:2005:i:6:p:622-629

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Keywords: Optimal taxation; employment; poverty; welfare;

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References

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  1. Emmanuel Saez, 2000. "Optimal Income Transfer Programs: Intensive Versus Extensive Labor Supply Responses," NBER Working Papers 7708, National Bureau of Economic Research, Inc.
  2. Ritva Immonen & Ravi Kanbur & Michael Keen & Matti Tuomala, 1994. "Tagging and taxing: the optimal use of categorical and income information in designing tax/transfer schemes," IFS Working Papers W94/05, Institute for Fiscal Studies.
  3. Besley, T. & Coate, S., 1991. "The Design Of Income Maintenance Programs," Papers 74, Princeton, Woodrow Wilson School - John M. Olin Program.
  4. Homburg, Stefan, 2002. "The Optimal Income Tax: Restatement and Extensions," Hannover Economic Papers (HEP) dp-252, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  5. Chambers, Robert G., 1989. "Workfare or welfare?," Journal of Public Economics, Elsevier, vol. 40(1), pages 79-97, October.
  6. Katherine Cuff, 1998. "Optimality of Workfare with Heterogeneous Preferences," Working Papers 968, Queen's University, Department of Economics.
  7. Immonen, Ritva, et al, 1998. "Tagging and Taxing: The Optimal Use of Categorical and Income Information in Designing Tax/Transfer Schemes," Economica, London School of Economics and Political Science, vol. 65(258), pages 179-92, May.
  8. Seade, J. K., 1977. "On the shape of optimal tax schedules," Journal of Public Economics, Elsevier, vol. 7(2), pages 203-235, April.
  9. Boadway, Robin & Marceau, Nicolas & Sato, Motohiro, 1999. "Agency and the design of welfare systems," Journal of Public Economics, Elsevier, vol. 73(1), pages 1-30, July.
  10. Homburg, Stefan, 1998. "An Axiomatic Proof of Mirrlees' Formula," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 285-295.
  11. Diamond, P., 1980. "Income taxation with fixed hours of work," Journal of Public Economics, Elsevier, vol. 13(1), pages 101-110, February.
  12. Homburg, Stefan, 2010. "Allgemeine Steuerlehre," EconStor Books, ZBW - German National Library of Economics, number 92547, November.
  13. Homburg, Stefan, 2002. "Optimal Marginal Tax Rates for Low Incomes: Positive, Negative, or Zero?," Hannover Economic Papers (HEP) dp-255, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  14. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
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Citations

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Cited by:
  1. Tim Lohse, 2006. "Zum optimalen Verhältnis von Sozialhilfe und Arbeitslosengeld II [zwei] : Themenschwerpunkt Arbeitslosengeld II [zwei]," ifo Dresden berichtet, Ifo Institute for Economic Research at the University of Munich, vol. 13(02), pages 16-19, 04.
  2. Krimmer, Pascal & Raffelhüschen, Bernd, 2007. "Grundsicherung in Deutschland: Analyse und Reformbedarf," FZG Discussion Papers 14, Research Center for Generational Contracts (FZG), University of Freiburg.
  3. Sterner, Cornelia, 2010. "Ein bedingungsloses Grundeinkommen in Form der negativen Einkommensteuer: Eine soziologische und finanzwissenschaftliche Analyse
    [An unconditional basic income in the form of the negative income ta
    ," MPRA Paper 39703, University Library of Munich, Germany, revised Jun 2012.

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