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Optimal taxation in the extensive model

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Author Info
Phillippe Choné
Guy Laroque () (Institute for Fiscal Studies and INSEE - CREST)

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Abstract

We study optimal taxation in the general extensive model: the only decision of the participants in the economy is to choose between working (full time) or staying inactive. People differ in their productivities and in other features which determine their work opportunity costs. The qualitative properties of optimal tax schemes are presented, with an emphasis on the role of heterogeneity in the equity-efficiency tradeoff. When the government has a redistributive stance, there are a number of cases where the low skilled workers face larger financial incentives to work than in the laissez-faire (negative average tax rates). In particular, this occurs whenever the social weights vary continuously with income and the social weight assigned to the less skilled workers is larger than average.

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Publisher Info
Paper provided by Institute for Fiscal Studies in its series IFS Working Papers with number W08/08.

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Length: 29 pp.
Date of creation: Nov 2008
Date of revision:
Handle: RePEc:ifs:ifsewp:08/08

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Find related papers by JEL classification:
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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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.:
  1. Chone, Philippe & Laroque, Guy, 2005. "Optimal incentives for labor force participation," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 395-425, February. [Downloadable!] (restricted)
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  2. Seade, J. K., 1977. "On the shape of optimal tax schedules," Journal of Public Economics, Elsevier, vol. 7(2), pages 203-235, April. [Downloadable!] (restricted)
  3. Emmanuel Saez, 2002. "Optimal Income Transfer Programs: Intensive Versus Extensive Labor Supply Responses," The Quarterly Journal of Economics, MIT Press, vol. 117(3), pages 1039-1073, August. [Downloadable!] (restricted)
    Other versions:
  4. Boone, Jan & Bovenberg, Lans, 2004. "The optimal taxation of unskilled labor with job search and social assistance," Journal of Public Economics, Elsevier, vol. 88(11), pages 2227-2258, September. [Downloadable!] (restricted)
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  5. Diamond, P., 1980. "Income taxation with fixed hours of work," Journal of Public Economics, Elsevier, vol. 13(1), pages 101-110, February. [Downloadable!] (restricted)
  6. Heckman, James J, 1993. "What Has Been Learned about Labor Supply in the Past Twenty Years?," American Economic Review, American Economic Association, vol. 83(2), pages 116-21, May. [Downloadable!] (restricted)
  7. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Blackwell Publishing, vol. 38(114), pages 175-208, April. [Downloadable!] (restricted)
  8. MARC FLEURBAEY & FRANÇOIS MANIQUET, 2006. "Fair Income Tax," Review of Economic Studies, Blackwell Publishing, vol. 73(1), pages 55-83, 01. [Downloadable!] (restricted)
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  9. Stiglitz, Joseph E., 1982. "Self-selection and Pareto efficient taxation," Journal of Public Economics, Elsevier, vol. 17(2), pages 213-240, March. [Downloadable!] (restricted)
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  10. Guy Laroque, 2005. "Income Maintenance and Labor Force Participation," Econometrica, Econometric Society, vol. 73(2), pages 341-376, 03. [Downloadable!] (restricted)
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This page was last updated on 2009-11-27.

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