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Optimal Non-linear Income Taxation for the Alleviation of Income Poverty

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Author Info
Ravi Kanbur
Michael Keen
Matti Tuomala

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Abstract

This paper is concerned with the optimal use of income information in the design of tax/transfer systems to alleviate poverty. The issue is one of optimal non-linear income taxation, but using a non-welfarist objective function that seems to accord well with the common concerns of policy debate: an income-based poverty index. We show that one of the key results of the welfarist literature is overturned: if it is desirable for everybody to work, the optimal marginal tax rate on the very poorest individuals is strictly negative. More generally, it is argued that the non-welfarist perspective points towards lower marginal tax rates in the lower part of the distribution than does the welfarist. Numerical simulations suggest, however, that this effect is of limited quantitative significance. Using conventional functional forms and parameter values, optimal marginal tax rates on the poor are in the 60-70% range.

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Publisher Info
Paper provided by Queen's University, Department of Economics in its series Working Papers with number 799.

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Length: 16 pages
Date of creation: 1990
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Handle: RePEc:qed:wpaper:799

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Keywords: economic policy household government information

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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. Besley, Timothy J & Kanbur, S M Ravi, 1988. "Food Subsidies and Poverty Alleviation," Economic Journal, Royal Economic Society, vol. 98(392), pages 701-19, September. [Downloadable!] (restricted)
  2. 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)
  3. King, Mervyn A., 1983. "Welfare analysis of tax reforms using household data," Journal of Public Economics, Elsevier, vol. 21(2), pages 183-214, July. [Downloadable!] (restricted)
  4. Besley, Timothy, 1990. "Means Testing versus Universal Provision in Poverty Alleviation Programmes," Economica, London School of Economics and Political Science, vol. 57(225), pages 119-29, February. [Downloadable!] (restricted)
  5. Atkinson, A B, 1987. "On the Measurement of Poverty," Econometrica, Econometric Society, vol. 55(4), pages 749-64, July. [Downloadable!] (restricted)
  6. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-66, May. [Downloadable!] (restricted)
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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.)

  1. Johannes Rincke & Robert Schwager, 2005. "Skills, Social Mobility, and the Support for the Welfare State," Center for European, Governance and Economic Development Research (cege) Discussion Papers 48, Center for European, Governance and Economic Development Research, University of Goettingen (Germany).. [Downloadable!]
  2. Michael Keen, 1997. "Peculiar institutions: A British perspective on tax policy in the United States," Fiscal Studies, Institute for Fiscal Studies, vol. 18(4), pages 371-400, November. [Downloadable!]
  3. Boone, J. & Bovenberg, L., 2002. "The optimal taxation of unskilled labor with job search and social assistance," Discussion Paper 57, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  4. Sören Blomquist & Luca Micheletto, 2005. "Optimal Redistributive Taxation when Government’s and Agents’ Preferences Differ," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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  5. Olivier Bargain & Olivier Donni, 2007. "A Theory of Child Targeting," IZA Discussion Papers 2669, Institute for the Study of Labor (IZA). [Downloadable!]
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  6. Robin Boadway & Nicolas Marceau & Motohiro Sato, 1997. "An Agency Model of Welfare and Disability Assistance," Cahiers de recherche CREFE / CREFE Working Papers 46, CREFE, Université du Québec à Montréal. [Downloadable!]
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  7. Jesurun-Clements, Nancy, 1992. "Paternalism and the alleviation of poverty," Policy Research Working Paper Series 822, The World Bank. [Downloadable!]
  8. Ravi Kanbur & Jukka Pirttilä & Matti Tuomala, 2004. "Non-Welfarist Optimal Taxation and Behavioral Public Economics," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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  9. Beaudry, Paul & Blackorby, Charles, 2004. "Taxes And Employment Subsidies In Optimal Redistribution Programs," The Warwick Economics Research Paper Series (TWERPS) 708, University of Warwick, Department of Economics. [Downloadable!]
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  10. Emmanuel Saez, 2000. "Optimal Income Transfer Programs: Intensive Versus Extensive Labor Supply Responses," NBER Working Papers 7708, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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