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Tax-benefit revealed social preferences

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  • Bourguignon, Francois
  • Spadaro, Amedeo

Abstract

This paper inverts the usual logic of applied optimal income taxation. It starts from the observed distribution of income before and after redistribution and corresponding marginal tax rates. Under a set of simplifying assumptions, it is then possible to recover the social welfare function that would make the observed marginal tax rate schedule optimal. In this framework, the issue of the optimality of an existing tax-benefit system is transformed into the issue of the shape of the social welfare function associated with that system and whether it satisfies elementary properties. This method is applied to the French redistribution system with the interesting implication that the French redistribution authority may appear, under some plausible scenario concerning the size of the labor supply behavioral reactions, non Paretian (e.g. giving negative marginal social weights to the richest class of tax payers).

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Paper provided by EUROMOD at the Institute for Social and Economic Research in its series EUROMOD Working Papers with number EM9/08.

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Date of creation: 01 Oct 2008
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Publication status: published
Handle: RePEc:ese:emodwp:em9-08

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  1. Pagan,Adrian & Ullah,Aman, 1999. "Nonparametric Econometrics," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521586115.
  2. Henrik Jacobsen Kleven & Claus Thustrup Kreiner & Emmanuel Saez, 2006. "The Optimal Income Taxation of Couples," NBER Working Papers 12685, National Bureau of Economic Research, Inc.
  3. Olivier Bargain, 2007. "On Modeling Household Labor Supply With Taxation," Working Papers, School Of Economics, University College Dublin 200711, School Of Economics, University College Dublin.
  4. Emmanuel Saez, 2000. "Using Elasticities to Derive Optimal Income Tax Rates," NBER Working Papers 7628, National Bureau of Economic Research, Inc.
  5. Richard Blundell & Mike Brewer & Peter Haan & Andrew Shephard, 2009. "Optimal Income Taxation of Lone Mothers: An Empirical Comparison of the UK and Germany," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 119(535), pages F101-F121, 02.
  6. Philippe Chone & Guy Laroque, 2001. "Optimal Incentives for Labor Force Participation," Working Papers, Centre de Recherche en Economie et Statistique 2001-26, Centre de Recherche en Economie et Statistique.
  7. Feldstein, Martin, 1995. "Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1986 Tax Reform Act," Scholarly Articles 2766676, Harvard University Department of Economics.
  8. François Bourguignon & Thierry Magnac, 1990. "Labor Supply and Taxation in France," Journal of Human Resources, University of Wisconsin Press, vol. 25(3), pages 358-389.
  9. Richard Blundell & Alan Duncan & Costas Meghir, 1998. "Estimating Labor Supply Responses Using Tax Reforms," Econometrica, Econometric Society, Econometric Society, vol. 66(4), pages 827-862, July.
  10. Amedeo Spadaro & François Bourguignon, 2000. "Redistribution et incitations au travail. Une application empirique simple de la fiscalité optimale," Revue économique, Presses de Sciences-Po, Presses de Sciences-Po, vol. 0(3), pages 473-487.
  11. Ahmad, Ehtisham & Stern, Nicholas, 1984. "The theory of reform and indian indirect taxes," Journal of Public Economics, Elsevier, Elsevier, vol. 25(3), pages 259-298, December.
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  13. Guy Laroque, 2005. "Income Maintenance and Labor Force Participation," Econometrica, Econometric Society, Econometric Society, vol. 73(2), pages 341-376, 03.
  14. Sutherland, Holly, 2001. "EUROMOD: an integrated European benefit-tax model: final report," EUROMOD Working Papers EM9/01, EUROMOD at the Institute for Social and Economic Research.
  15. Ebert, Udo, 1992. "A reexamination of the optimal nonlinear income tax," Journal of Public Economics, Elsevier, Elsevier, vol. 49(1), pages 47-73, October.
  16. Tuomala, Matti, 1990. "Optimal Income Tax and Redistribution," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198286059, October.
  17. Hausman, Jerry A, 1985. "The Econometrics of Nonlinear Budget Sets," Econometrica, Econometric Society, Econometric Society, vol. 53(6), pages 1255-82, November.
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  20. Emmanuel Saez, 2002. "Optimal Income Transfer Programs: Intensive Versus Extensive Labor Supply Responses," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 117(3), pages 1039-1073, August.
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