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Taxation and Tournaments


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. Copyright 2005 Blackwell Publishing Inc..

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Article provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.

Volume (Year): 7 (2005)
Issue (Month): 4 (October)
Pages: 543-559

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Handle: RePEc:bla:jpbect:v:7:y:2005:i:4:p:543-559
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  1. Storesletten, Kjetil & Telmer, Chris & Yaron, Amir, 2002. "Consumption and Risk Sharing Over the Life Cycle," Seminar Papers 702, Stockholm University, Institute for International Economic Studies.
  2. Lindbeck, Assar & Nyberg, Sten, 2001. "Raising Children to Work Hard: Altruism, Work Norms and Social Insurance," Research Papers in Economics 2001:5, Stockholm University, Department of Economics.
  3. John Hassler & José V. Rodríguez Mora & Kjetil Storesletten & Fabrizio Zilibotti, 2001. "A positive theory of geographic mobility and social insurance," Economics Working Papers 604, Department of Economics and Business, Universitat Pompeu Fabra.
  4. Calvo-Armengol, Antoni & Zenou, Yves, 2005. "Job matching, social network and word-of-mouth communication," Journal of Urban Economics, Elsevier, vol. 57(3), pages 500-522, May.
  5. Hassler, John & Mora, José V Rodríguez & Storesletten, Kjetil & Zilibotti, Fabrizio, 2001. "The Survival of the Welfare State," CEPR Discussion Papers 2905, C.E.P.R. Discussion Papers.
  6. Kjetil Storesletten & Chris Telmer & Amir Yaron, 1996. "Asset pricing with idiosyncratic risk and overlapping generations," Economics Working Papers 405, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 1999.
  7. Calmfors, Lars & Forslund, Anders & Hemström, Maria, 2002. "Does Active Labour Market Policy Work? Lessons from the Swedish Experiences," Seminar Papers 700, Stockholm University, Institute for International Economic Studies.
  8. Svensson, Lars E. O. & Woodford, Michael, 2003. "Indicator variables for optimal policy," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 691-720, April.
  9. Assar Lindbeck & Mats Persson, 2003. "The Gains from Pension Reform," Journal of Economic Literature, American Economic Association, vol. 41(1), pages 74-112, March.
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