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Multi-dimensional Heterogeneity and the Design of Tax Policies


  • Helmuth Cremer

    (University of Toulouse)


This paper surveys some recent contributions which have revisited the design of optimal policy mix when individuals differ in several characteristics. Because of the technical difficulties raised by multidimensional screening models the specification of tractable taxation models has long been neglected. This is certainly a serious omission because the underlying policy issues are of considerable importance for the policy design in today’s welfare states. The main lesson that emerges is that the design of redistributive policy is not as “simple” as the Atkinson and Stiglitz theorem suggests. Policy makers should not concentrate on a single instrument (labor income taxation). While the optimal design of the income tax is certainly a significant ingredient of the overall policy mix, it is not the only relevant instrument. The optimal policy mix may very well rely on a large number of instruments including capital income tax, social insurance and housing policies.

Suggested Citation

  • Helmuth Cremer, 2003. "Multi-dimensional Heterogeneity and the Design of Tax Policies," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 4(1), pages 35-45, December.
  • Handle: RePEc:bic:journl:v:4:y:2003:i:1:p:35-45

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    References listed on IDEAS

    1. Bovenberg, A. L. & van der Ploeg, F., 1994. "Environmental policy, public finance and the labour market in a second-best world," Journal of Public Economics, Elsevier, vol. 55(3), pages 349-390, November.
    2. de Bovenberg, A Lans & Mooij, Ruud A, 1994. "Environmental Levies and Distortionary Taxation," American Economic Review, American Economic Association, vol. 84(4), pages 1085-1089, September.
    3. A. Lans Bovenberg & Lawrence H. Goulder, 2001. "Neutralizing the Adverse Industry Impacts of CO2 Abatement Policies: What Does It Cost?," NBER Chapters,in: Behavioral and Distributional Effects of Environmental Policy, pages 45-90 National Bureau of Economic Research, Inc.
    4. Babiker, Mustafa H. & Metcalf, Gilbert E. & Reilly, John, 2003. "Tax distortions and global climate policy," Journal of Environmental Economics and Management, Elsevier, vol. 46(2), pages 269-287, September.
    5. Bovenberg, A Lans & de Mooij, Ruud A, 1997. "Environmental Levies and Distortionary Taxation: Reply," American Economic Review, American Economic Association, vol. 87(1), pages 252-253, March.
    6. A. B. Atkinson & N. H. Stern, 1974. "Pigou, Taxation and Public Goods," Review of Economic Studies, Oxford University Press, vol. 41(1), pages 119-128.
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    Cited by:

    1. CREMER, Helmuth & PESTIEAU, Pierre, 2016. "Taxing Pensions," CORE Discussion Papers 2016006, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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