Using the standard non linear income and commodity taxation framework this paper examines the optimal policy to be adopted when the same labor disutility can receive two opposite interpretations: taste for leisure and activity limitation. In the absence of complete information about individual characteristics, an income tax does not allow to distinguish lazy from handicapped individuals. One may however rely on a combination of commodity and income taxes to redistribute from the former to the latter when they differ in their preferences for commodities.
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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
2003018.
Find related papers by JEL classification: H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
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Cremer, Helmuth & Lozachmeur, Jean-Marie & Pestieau, Pierre, 2004.
"Disability Testing and Retirement,"
IDEI Working Papers
281, Institut d'Économie Industrielle (IDEI), Toulouse.
[Downloadable!]
Other versions:
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!]