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On the Efficiency of Equal Sacrifice Income Tax Schedules

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  • Costa, Carlos Eugênio
  • Pereira, Thiago
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    Abstract

    In an economy which primitives are exactly those in Mirrlees (1971), we investigatethe efficiency of labor income tax schedules derived under the equal sacrifice principle.Starting from a given government revenue level, we useWerning’s (2007b) approach toassess whether there is an alternative tax schedule to the one derived under the equalsacrifice principle that raises more revenue while delivering less utility to no one. Forour preferred parametrizations of the problem we find that inefficiency only arises atvery high levels of income. We also show how the multipliers of the Pareto problemmay be extracted from the data and used to find the implicit marginal social weightsassociated with each level of income.

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    Paper provided by FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil) in its series Economics Working Papers (Ensaios Economicos da EPGE) with number 741.

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    Date of creation: 18 Apr 2013
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    Handle: RePEc:fgv:epgewp:741

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    1. Berliant, Marcus & Gouveia, Miguel, 1993. "Equal sacrifice and incentive compatible income taxation," Journal of Public Economics, Elsevier, vol. 51(2), pages 219-240, June.
    2. Louis Kaplow & Steven Shavell, 2001. "Any Non-welfarist Method of Policy Assessment Violates the Pareto Principle," Journal of Political Economy, University of Chicago Press, vol. 109(2), pages 281-286, April.
    3. Matthew C. Weinzierl, 2012. "The Promise of Positive Optimal Taxation," NBER Working Papers 18599, National Bureau of Economic Research, Inc.
    4. Iván Werning, 2007. "Optimal Fiscal Policy with Redistribution," The Quarterly Journal of Economics, MIT Press, vol. 122(3), pages 925-967, 08.
    5. Guesnerie,Roger, 1998. "A Contribution to the Pure Theory of Taxation," Cambridge Books, Cambridge University Press, number 9780521629560, April.
    6. Mill, John Stuart, 1874. "Essays on Some Unsettled Questions of Political Economy," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, edition 2, number mill1874.
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