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Optimal redistribution with heterogeneous preferences for leisure

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Author Info
BOADWAY, R.
MARCHAND, M.
PESTIEAU, P.
del MAR RACIONERO, M.

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Abstract

This paper examines the properties of the optimal nonlinear income tax when preferences are quasilinear in leisure and heterogeneous. Individuals differ in their ability and in their preferences for leisure. The government seeks to redistribute income. It can perfectly observe the level of endogenous income but cannot observe either ability or preferences. Theheterogeneity of preferences leads to problems of comparability between individual utilities which challenge the design of redistributive schemes. In particular, we analyze the consequences of adopting a utilitarian socialwelfare function where the government is allowed to give different weights to individuals wih different preferences. Under this particular social objective and given the quasilinearity of preferences, we are able to obtain closed-form solutions for the marginal tax rates and to examine the progressivity of the tax system according to the weights used.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2001025.

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Date of creation: 01 May 2001
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Handle: RePEc:cor:louvco:2001025

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Related research
Keywords: optimal income taxation; quasi-linear preferences; asymmetric information;

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Find related papers by JEL classification:
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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. Lollivier, Stefan & Rochet, Jean-Charles, 1983. "Bunching and second-order conditions: A note on optimal tax theory," Journal of Economic Theory, Elsevier, vol. 31(2), pages 392-400, December. [Downloadable!] (restricted)
  2. Weymark, John A, 1987. "Comparative Static Properties of Optimal Nonlinear Income Taxes," Econometrica, Econometric Society, vol. 55(5), pages 1165-85, September. [Downloadable!] (restricted)
  3. M. Fleurbaey & F. Maniquet, 1999. "Optimal income taxation : An ordinal approach," THEMA Working Papers 99-43, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise. [Downloadable!]
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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. Engström, Per, 2003. "Unemployment Benefits and Optimal Non-Linear Income Taxation," Working Paper Series 2003:3, Uppsala University, Department of Economics. [Downloadable!]
  2. 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:
  3. Jukka Pirttilä & Sanna Tenhunen, 2005. "Pawns and Queens Revisited: Public Provision of Private Goods when Individuals make Mistakes," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  4. Jordahl, Henrik & Micheletto, Luca, 2002. "Optimal Utilitarian Taxation and Horizontal Equity," Ratio Working Papers 17, The Ratio Institute. [Downloadable!]
    Other versions:
  5. Rolf Aaberge & Ugo Colombino, 2006. "Designing Optimal Taxes with a Microeconometric Model of Household Labour Supply," ICER Working Papers 37-2006, ICER - International Centre for Economic Research. [Downloadable!]
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  6. CREMER, Helmuth & LOZACHMEUR, Jean-Marie & PESTIEAU, Pierre, 2006. "Disability testing and retirement," CORE Discussion Papers 2006016, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
    Other versions:
  7. 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:
  8. Soeren Blomquist & Vidar Christiansen, 2003. "Is there a Case for Public Provision of Private Goods if Preferences are Heterogeneous? An Example with Day Care," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  9. Blomquist, Sören & Christiansen, Vidar, 2004. "Welfare Enhancing Marginal Tax Rates: The Case of Publicly Provided Day Care," Arbetsrapport 2004:6, Institute for Futures Studies. [Downloadable!]
  10. Craig Brett & John A. Weymark, 2000. "Financing Education Using Optimal Redistributive Taxation," Working Papers 0038, Department of Economics, Vanderbilt University, revised May 2001. [Downloadable!]
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  11. Peter Diamond & Johannes Spinnewijn, . "Capital Income Taxes With Heterogeneous Discount Rates," Working Papers, Center for Retirement Research at Boston College wp2009-14, Center for Retirement Research. [Downloadable!]
  12. Philippe Choné & Guy Laroque, 2009. "Negative marginal tax rates and heterogeneity," IFS Working Papers W09/12, Institute for Fiscal Studies. [Downloadable!]
  13. MARCHAND, Maurice & PESTIEAU, Pierre & DEL MAR RACIONERO, Maria, 2003. "Optimal redistribution when different workers are indistinguishable," CORE Discussion Papers 2003018, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
    Other versions:
  14. Peter A. Diamond & Johannes Spinnewijn, 2009. "Capital Income Taxes with Heterogeneous Discount Rates," NBER Working Papers 15115, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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