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Tax–benefit revealed social preferences

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  • François Bourguignon
  • Amedeo Spadaro

    ()

Abstract

This paper inverts the usual logic of applied optimal income taxation. It starts from the observed distribution of income before and after redistribution and corresponding marginal tax rates. Under a set of simplifying assumptions, it is then possible to recover the social welfare function that would make the observed marginal tax rate schedule optimal. In this framework, the issue of the optimality of an existing tax-benefit system is transformed into the issue of the shape of the social welfare function associated with that system and whether it satisfies elementary properties. This method is applied to the French redistribution system with the interesting implication that the French redistribution authority either has a rather low estimate of the labor supply elasticity or does not give positive social weights to the richest tax payers.

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Bibliographic Info

Article provided by Springer in its journal The Journal of Economic Inequality.

Volume (Year): 10 (2012)
Issue (Month): 1 (March)
Pages: 75-108

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Handle: RePEc:kap:jecinq:v:10:y:2012:i:1:p:75-108

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Web page: http://springerlink.metapress.com/link.asp?id=111137

Related research

Keywords: Social welfare function; Optimal income tax; Microsimulation; Optimal inverse problem; H11; H21; D63; C63;

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References

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  1. Hausman, Jerry A, 1985. "The Econometrics of Nonlinear Budget Sets," Econometrica, Econometric Society, vol. 53(6), pages 1255-82, November.
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  9. Richard Blundell & Mike Brewer & Peter Haan & Andrew Shephard, 2009. "Optimal Income Taxation of Lone Mothers: An Empirical Comparison of the UK and Germany," Economic Journal, Royal Economic Society, vol. 119(535), pages F101-F121, 02.
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  11. Pagan,Adrian & Ullah,Aman, 1999. "Nonparametric Econometrics," Cambridge Books, Cambridge University Press, number 9780521355643.
  12. François Bourguignon & Amedeo Spadaro, 2000. "Redistribution et incitations au travail. Une application empirique simple de la fiscalité optimale," Revue Économique, Programme National Persée, vol. 51(3), pages 473-487.
  13. Saez, Emmanuel, 2001. "Using Elasticities to Derive Optimal Income Tax Rates," Review of Economic Studies, Wiley Blackwell, vol. 68(1), pages 205-29, January.
  14. Guy Laroque, 2005. "Income Maintenance and Labor Force Participation," Econometrica, Econometric Society, vol. 73(2), pages 341-376, 03.
  15. Philippe Chone & Guy Laroque, 2001. "Optimal Incentives for Labor Force Participation," Working Papers 2001-26, Centre de Recherche en Economie et Statistique.
  16. François Bourguignon & Thierry Magnac, 1990. "Labor Supply and Taxation in France," Journal of Human Resources, University of Wisconsin Press, vol. 25(3), pages 358-389.
  17. Ebert, Udo, 1992. "A reexamination of the optimal nonlinear income tax," Journal of Public Economics, Elsevier, vol. 49(1), pages 47-73, October.
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