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Redistributive Taxation in the Roy Model

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  • Casey Rothschild
  • Florian Scheuer

Abstract

We consider optimal redistribution in a model where individuals can self-select into one of several possible sectors based on heterogeneity in a multidimensional skill vector. We first show that when the government does not observe the sectoral choice or underlying skills of its citizens, the constrained Pareto frontier can be implemented with a single non-linear income tax. We then characterize this optimal tax schedule. If sectoral inputs are complements, a many-sector model with self-selection leads to optimal income taxes that are less progressive than the corresponding taxes in a standard single-sector model under natural conditions. However, they are more progressive than in canonical multi-sector economies with discrete types and without occupational choice or overlapping sectoral wage distributions.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18228.

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Date of creation: Jul 2012
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Publication status: published as Casey Rothschild, 2013. "Redistributive Taxation in the Roy Model," The Quarterly Journal of Economics, Oxford University Press, vol. 128(2), pages 623-668.
Handle: RePEc:nbr:nberwo:18228

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Cited by:
  1. Burdín, Gabriel, 2013. "Equality under Threat by the Talented: Evidence from Worker-Managed Firms," IZA Discussion Papers 7854, Institute for the Study of Labor (IZA).
  2. Etienne Lehmann & Laurent Simula & Alain Trannoy, 2013. "Tax Me If You Can! Optimal Nonlinear Income Tax between Competing Governments," CESifo Working Paper Series 4351, CESifo Group Munich.
  3. Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2014. "Optimal Tax Progressivity: An Analytical Framework," NBER Working Papers 19899, National Bureau of Economic Research, Inc.
  4. Thomas Piketty & Emmanuel Saez & Stefanie Stantcheva, 2014. "Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities," American Economic Journal: Economic Policy, American Economic Association, vol. 6(1), pages 230-71, February.
  5. Scheuer, Florian, 2013. "Adverse selection in credit markets and regressive profit taxation," Journal of Economic Theory, Elsevier, vol. 148(4), pages 1333-1360.
  6. Michela Tincani, 2014. "School Vouchers and the Joint Sorting of Students and Teachers," Working Papers 2014-012, Human Capital and Economic Opportunity Working Group.
  7. Matthew C. Weinzierl, 2012. "The Promise of Positive Optimal Taxation," NBER Working Papers 18599, National Bureau of Economic Research, Inc.
  8. Benjamin B. Lockwood & Matthew Weinzierl, 2014. "Positive and Normative Judgments Implicit in U.S. Tax Policy, and the Costs of Unequal Growth and Recessions," Harvard Business School Working Papers 14-119, Harvard Business School.
  9. Florian Scheuer, 2013. "Entrepreneurial Taxation with Endogenous Entry," NBER Working Papers 19235, National Bureau of Economic Research, Inc.
  10. Laurence Ales & Kurnaz Musab & Sleet Christopher, . "Task, Talent, and Taxes," GSIA Working Papers 2014-E16, Carnegie Mellon University, Tepper School of Business.
  11. Laurence Ales & Soo-Haeng Cho & Ersin Korpeoglu, . "Innovation Tournaments with Multiple Contributors," GSIA Working Papers 2014-E17, Carnegie Mellon University, Tepper School of Business.

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