The purpose of this paper is to introduce and adopt a generalised version of Roemer's (1998) Equality of Opportunity (EOp) framework for analysing optimal income taxation. EOp optimal tax rules seek to equalise income differentials arising from factors beyond the control of the individual. Unlike the pure EOp criterion of Roemer (1998) the generalised EOp criterion allows for alternative weighting profiles in the treatment of income differentials between and within types when types are defined by circumstances that are beyond people's control. An empirical microeconometric model of labour supply in Italy is used to simulate and identify optimal tax rules within classes of two- and three-parameter tax rules. A rather striking result of the analysis is that the optimal tax rule turns out to be the pure lump-sum tax, under Roemer's pure EOp criterion as well as under the generalised EOp criterion with moderate degrees of aversion to within-type inequality. A high degree of within-type inequality aversion instead produces EOp-optimal rules with positive marginal tax rates. When the EOp-version of the Gini welfare function is adopted as Eop criterion, the optimal tax rule turns out to be close to the actual 1993 Italian tax system, if not for the important difference of prescribing a universal lump-sum positive transfer of 3,500,000 ITL, which has no comparable counterpart in the actual system. On the other hand, when using the conventional equality of outcome (EO) criterion, the pure lump-sum tax always turns out to be optimal, at least with respect to the classes of two- and three-parameter rules. We also compute second-best solutions, namely we exclude lump-sum taxes. Overall, the results do not conform to the perhaps common expectation that the EO criterion is more supportive of “interventionist” (redistributive) policies than an EOp approach.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by ICER - International Centre for Economic Research in its series ICER Working Papers with number
05-2003.
Length: 27 pages Date of creation: Feb 2003 Date of revision: Handle: RePEc:icr:wpicer:05-2003
Contact details of provider: Postal: Viale Settimio Severo, 63 - 10133 Torino - Italy Phone: +39 011 6604828 Fax: +39 011 6600082 Email: Web page: http://www.icer.it More information through EDIRC
For technical questions regarding this item, or to correct its listing, contact: (Stefano T. Chiado').
Find related papers by JEL classification: D19 - Microeconomics - - Household Behavior - - - Other D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
This paper has been announced in the following NEP Reports:
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)