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Optimal Redistribution with Heterogeneous Preferences for Leisure

Author

Listed:
  • Robin Boadway
  • Maurice Marchand
  • Pierre Pestieau
  • María Del Mar Racionero

Abstract

This paper examines the properties of the optimal nonlinear income tax when preferences are quasi–linear in leisure and individuals differ in their ability and their preferences for leisure. The government seeks to redistribute income. It can perfectly observe the level of endogenous income but cannot observe either ability or preferences. The heterogeneity of preferences leads to problems of comparability between individual utilities which challenge the design of redistributive schemes. We analyze the consequences of adopting a utilitarian social welfare function where the government is allowed to give different weights to individuals with different preferences. Under this particular social objective and given the quasi–linearity of preferences, we are able to obtain closed–form solutions for the marginal tax rates and to examine the progressivity of the tax system according to the weights used.

Suggested Citation

  • Robin Boadway & Maurice Marchand & Pierre Pestieau & María Del Mar Racionero, 2002. "Optimal Redistribution with Heterogeneous Preferences for Leisure," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 4(4), pages 475-498, October.
    • Handle: RePEc:bla:jpbect:v:4:y:2002:i:4:p:475-498
    DOI: 10.1111/1097-3923.00106
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    References listed on IDEAS

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    1. Robin Boadway & Katherine Cuff & Maurice Marchand, 2000. "Optimal Income Taxation With Quasi‐Linear Preferences Revisited," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 2(4), pages 435-460, October.
    2. Katherine Cuff, 2000. "Optimality of workfare with heterogeneous preferences," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 33(1), pages 149-174, February.
    3. Weymark, John A, 1987. "Comparative Static Properties of Optimal Nonlinear Income Taxes," Econometrica, Econometric Society, vol. 55(5), pages 1165-1185, September.
    4. FLEURBAEY, Marc & MANIQUET, François, 1998. "Optimal income taxation: and ordinal approach," LIDAM Discussion Papers CORE 1998065, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    5. John E. Roemer & Alain Trannoy, 2013. "Equality of Opportunity," Cowles Foundation Discussion Papers 1921, Cowles Foundation for Research in Economics, Yale University.
    6. Lollivier, Stefan & Rochet, Jean-Charles, 1983. "Bunching and second-order conditions: A note on optimal tax theory," Journal of Economic Theory, Elsevier, vol. 31(2), pages 392-400, December.
    7. repec:bla:jpbect:v:2:y:2000:i:4:p:435-60 is not listed on IDEAS
    8. Weymark, John A., 1986. "A reduced-form optimal nonlinear income tax problem," Journal of Public Economics, Elsevier, vol. 30(2), pages 199-217, July.
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    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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