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A Comparison of Optimal Tax Policies when Compensation or Responsibility Matter

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  • Laurence Jacquet
  • Dirk Van de gaer

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

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2997.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_2997

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Keywords: optimal income taxation; equality of opportunity; heterogeneous preferences for labor;

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References

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Cited by:
  1. Ooghe, Erwin & Peichl, Andreas, 2010. "Fair and Efficient Taxation under Partial Control: Theory and Evidence," IZA Discussion Papers 5388, Institute for the Study of Labor (IZA).
  2. 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.
  3. RAMOS, Xavier & VAN DE GAER, Dirk, 2012. "Empirical approaches to inequality of opportunity: principles, measures, and evidence," CORE Discussion Papers 2012026, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. 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.
  5. JACQUET, Laurence & VAN DE GAER, Dirk, . "A comparison of optimal tax policies when compensation or responsibility matter," CORE Discussion Papers RP -2421, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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