Inequality and Optimal Redistributive Tax and Transfer Policies
AbstractThis paper explores the revenue-raising aspect of progressive taxation and derives, on the basis of a simple model, the optimal degree of tax progressivity where the tax revenue is used exclusively to finance (perfectly) targeted transfers to the poor. The paper shows that not only would it be optimal to finance the targeted transfers with progressive taxation, but that the optimal progressivity increases unambiguously with growing income inequality. This conclusion holds up under different assumptions about the efficiency cost of taxation and society’s aversion to inequality.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 99/60.
Date of creation: 01 Apr 1999
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Postal: International Monetary Fund, Washington, DC USA
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Other versions of this item:
- Howell H. Zee, 2004. "Inequality and Optimal Redistributive Tax and Transfer Policies," Public Finance Review, , vol. 32(4), pages 359-381, July.
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- Kim, Junghun, 2005. "Tax reform issues in Korea," Journal of Asian Economics, Elsevier, vol. 16(6), pages 973-992, December.
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