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A comparison of optimal tax policies when compensation or responsibility matter

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  • JACQUET, Laurent

    ()
    (Norwegian School of Economics and Business Administration, Economics Department, Bergen, Norway)

  • VAN DE GAER, Dirk

    ()
    (SHERPPA, Faculteit Economie and Bedrijfskunde, Ghent University, Ghent, Belgium and Université catholique de Louvain, CORE, Louvain la Neuve, Belgium)

Abstract

This paper examines optimal redistribution in a model with high and low-skilled individuals with heterogeneous tastes for labor, that either work or not. With such double heterogeneity, traditional Welfarist criteria including Utilitarianism fail to take the compensation-responsibility trade-off into account. As a response, several other criteria have been proposed in the literature. This paper is the first to 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. The criteria from the social choice literature perform better in this regard than the traditional criteria, both 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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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2009064.

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Date of creation: 01 Oct 2009
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Handle: RePEc:cor:louvco:2009064

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

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Citations

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Cited by:
  1. 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).
  2. Giacomo Valletta, 2014. "Health, fairness and taxation," Social Choice and Welfare, Springer, vol. 43(1), pages 101-140, June.
  3. Erwin OOGHE & Andreas PEICHL, 2010. "Fair and efficient taxation under partial control: theory and evidence," Center for Economic Studies - Discussion papers ces10.32, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
  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. 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.
  6. X. Ramos & D. Van De Gaer, 2012. "Empirical Approaches to Inequality of Opportunity: Principles, Measures, and Evidence," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 12/792, Ghent University, Faculty of Economics and Business Administration.

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