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Poverty and the Optimal General Income Tax-cum-Audit Policy

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Listed:
  • Marcelo Arbex
  • Enlinson Mattos

Abstract

This paper investigates the optimal general income tax and audit policies when poverty is a public bad and income is not observed in an economy with two types of individuals. Di erently from the traditional "non-distortion at the top" result of the optimal taxation literature, we nd that the optimal marginal income tax rate on skilled individuals is positive when reducing poverty is one of the goals of the social planner and their consumption can affect negatively the poverty measure. Consequently, skilled individuals might be audited stochastically. We characterize a tax regime in which unskilled workers face a negative marginal tax.

Suggested Citation

  • Marcelo Arbex & Enlinson Mattos, 2010. "Poverty and the Optimal General Income Tax-cum-Audit Policy," Working Papers 02-2010, Universidade de São Paulo, Faculdade de Economia, Administração e Contabilidade de Ribeirão Preto.
    • Handle: RePEc:fea:wpaper:02-2010
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    References listed on IDEAS

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    More about this item

    Keywords

    Poverty; Tax evasion; Optimum Taxation;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

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