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Optimal redistribution with heterogeneous preferences for leisure

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  • BOADWAY, Robin
  • MARCHAND, Maurice
  • PESTIEAU , Pierre
  • RACIONERO, Maria del mar

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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File URL: http://dx.doi.org/10.1111/1097-3923.00106
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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number -1566.

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Handle: RePEc:cor:louvrp:-1566

Note: In : Journal of Public Economic Theory, 4(4), 475-498, 2002
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  1. Weymark, John A, 1987. "Comparative Static Properties of Optimal Nonlinear Income Taxes," Econometrica, Econometric Society, vol. 55(5), pages 1165-85, September.
  2. repec:fth:louvco:9865 is not listed on IDEAS
  3. Katherine Cuff, 2000. "Optimality of workfare with heterogeneous preferences," Canadian Journal of Economics, Canadian Economics Association, vol. 33(1), pages 149-174, February.
  4. FLEURBAEY, Marc & MANIQUET, François, 1998. "Optimal income taxation: and ordinal approach," CORE Discussion Papers 1998065, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Robin Boadway & Katherine Cuff & Maurice Marchand, 1999. "Optimal Income Taxation With Quasi-Linear Preferences Revisited," Working Papers 984, Queen's University, Department of Economics.
  6. 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.
  7. Weymark, John A., 1986. "A reduced-form optimal nonlinear income tax problem," Journal of Public Economics, Elsevier, vol. 30(2), pages 199-217, July.
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