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Taxation and Tournaments

  • MATS PERSSON
  • AGNAR SANDMO

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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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-9779.2005.00233.x
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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. John Hassler & José V. Rodriguez Mora & Kjetil Storesletten & Fabrizio Zilibotti, 2002. "A Positive Theory of Geographic Mobility and Social Insurance," CESifo Working Paper Series 791, CESifo Group Munich.
  2. Lars E.O. Svensson & Michael Woodford, 2000. "Indicator variables for optimal policy," Proceedings, Federal Reserve Bank of San Francisco.
  3. Kjetil Storesletten & Chris I. Telmer & Amir Yaron, 2000. "Consumption and Risk Sharing Over the Life Cycle," NBER Working Papers 7995, National Bureau of Economic Research, Inc.
  4. Lars Calmfors & Anders Forslund & Maria Hemström, 2002. "Does Active Labour Market Policy Work? Lessons from the Swedish Experiences," CESifo Working Paper Series 675, CESifo Group Munich.
  5. Kjetil Storesletten & Chris Telmer & Amir Yaron, . "Asset pricing with idiosyncratic risk and overlapping generations," GSIA Working Papers 226, Carnegie Mellon University, Tepper School of Business.
  6. Lindbeck, Assar & Nyberg, Sten, 2001. "Raising Children to Work Hard: Altruism, Work Norms and Social Insurance," Working Paper Series 557, Research Institute of Industrial Economics.
  7. John Hassler & José V. Rodríguez Mora & Kjetil Storesletten & Fabrizio Zilibotti, 2001. "The survival of the welfare state," Economics Working Papers 603, Department of Economics and Business, Universitat Pompeu Fabra.
  8. Calvó-Armengol, Antoni & Zenou, Yves, 2001. "Job Matching, Social Network and Word-of-Mouth Communication," CEPR Discussion Papers 2797, C.E.P.R. Discussion Papers.
  9. Lindbeck, Assar & Persson, Mats, 2002. "The Gains from Pension Reform," Seminar Papers 712, Stockholm University, Institute for International Economic Studies.
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