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.
Length: Date of creation: 01 Oct 2008 Date of revision: Handle: RePEc:ese:emodwp:em9/08
Note: Microsimulation, Social Welfare Function, Optimal Income Tax, Optimal Inverse Problem Contact details of provider: Postal: RAB Butler Building, University of Essex, Wivenhoe Park, Colchester, ESSEX C04 3SQ Phone: +44 (0)1206 872957 Fax: +44 (0)1206 873151 Email: Web page: http://www.iser.essex.ac.uk/research/euromod/ More information through EDIRC
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Find related papers by JEL classification: H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement C63 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computational Techniques
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