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A comparison of optimal tax policies when compensation or responsibility matter

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  • JACQUET, Laurence
  • VAN DE GAER, Dirk

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 RP with number -2421.

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Handle: RePEc:cor:louvrp:-2421

Note: In : Journal of Public Economics, 95(11-12), 1248-1262, 2011
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Citations

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Cited by:
  1. Ramos, Xavi & Van de gaer, Dirk, 2012. "Empirical Approaches to Inequality of Opportunity: Principles, Measures, and Evidence," IZA Discussion Papers 6672, 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. JACQUET, Laurent & VAN DE GAER, Dirk, 2009. "A comparison of optimal tax policies when compensation or responsibility matter," CORE Discussion Papers 2009064, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. 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.
  5. 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.

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