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Taxation and Tournaments

Author

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  • MATS PERSSON
  • AGNAR SANDMO

Abstract

This paper analyzes the effects of progressive taxes on labor supply and income distribution in the context of the rank‐order tournament model originally developed by Lazear and Rosen (1981). We show conditions under which a more progressive tax schedule will cause so large general equilibrium effects that the inequality in disposable income will actually increase. We also show that a non‐zero redistributive tax is always optimal if society's welfare function displays inequality aversion; this result always holds, regardless of behavioral responses and general equilibrium effects.

Suggested Citation

  • Mats Persson & Agnar Sandmo, 2005. "Taxation and Tournaments," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(4), pages 543-559, October.
    • Handle: RePEc:bla:jpbect:v:7:y:2005:i:4:p:543-559
    DOI: 10.1111/j.1467-9779.2005.00233.x
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    Cited by:

    1. Nicholas Lawson, 2014. "Taxing the Job Creators: Effcient Progressive Taxation with Wage Bargaining," Working Papers halshs-01059604, HAL.
    2. Carpenter, Jeffrey & Matthews, Peter Hans & Tabb, Benjamin, 2016. "Progressive taxation in a tournament economy," Journal of Public Economics, Elsevier, vol. 143(C), pages 64-72.
    3. Assar Lindbeck, 2002. "The European Social Model: Lessons for Developing Countries," Asian Development Review (ADR), World Scientific Publishing Co. Pte. Ltd., vol. 19(01), pages 1-13.
    4. Minchuk, Yizhaq & Sela, Aner, 2023. "Subsidy and taxation in all-pay auctions under incomplete information," Games and Economic Behavior, Elsevier, vol. 140(C), pages 99-114.
    5. Geir H. Bjertnæs, 2012. "Promotion rat race and public policy," Discussion Papers 686, Statistics Norway, Research Department.
    6. Yizhaq Minchuk & Aner Sela, 2021. "Subsidy and Taxation in All-Pay Auctions under Incomplete," Working Papers 2104, Ben-Gurion University of the Negev, Department of Economics.
    7. Lawson, Nicholas, 2019. "Taxing the job creators: Efficient taxation with bargaining in hierarchical firms," Labour Economics, Elsevier, vol. 56(C), pages 1-25.
    8. Geir Bjertnaes, 2012. "Promotion Rat Race and Public Policy," CESifo Working Paper Series 3781, CESifo.

    More about this item

    JEL classification:

    • H00 - Public Economics - - General - - - General

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