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Poverty alleviation and tax policy

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  • Pirttila, Jukka
  • Tuomala, Matti

Abstract

This paper examines public good provision and tax policy ­ optimal non-linear income taxation and linear commodity taxation ­ when the government departs from purely welfarist objective function and seeks to minimise poverty. This assumption reflects much policy discussion and may help understand some divergences of practical tax policy from lessons in optimal tax analysis. In contrast to Atkinson and Stiglitz (1976), it may be optimal to use differentiated commodity tax rates, including the taxation of savings, even if preferences are separable in goods and leisure. The optimal effective marginal tax rate at the bottom of the distribution may be negative, suggesting that wage subsidy schemes can be optimal. Finally, optimal provision rules are derived for a public good under poverty minimisation.
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Suggested Citation

  • Pirttila, Jukka & Tuomala, Matti, 2004. "Poverty alleviation and tax policy," European Economic Review, Elsevier, vol. 48(5), pages 1075-1090, October.
  • Handle: RePEc:eee:eecrev:v:48:y:2004:i:5:p:1075-1090
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    References listed on IDEAS

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    1. Kanbur, Ravi & Keen, Michael & Tuomala, Matti, 1994. "Optimal non-linear income taxation for the alleviation of income-poverty," European Economic Review, Elsevier, vol. 38(8), pages 1613-1632, October.
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    16. Kanbur, Ravi & Keen, Michael & Tuomala, Matti, 1994. "Labor Supply and Targeting in Poverty Alleviation Programs," World Bank Economic Review, World Bank Group, vol. 8(2), pages 191-211, May.
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    Citations

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    Cited by:

    1. Ravi Kanbur & Jukka Pirttilä & Matti Tuomala, 2006. "Non-Welfarist Optimal Taxation And Behavioural Public Economics," Journal of Economic Surveys, Wiley Blackwell, vol. 20(5), pages 849-868, December.
    2. European Commission, 2011. "Tax Reforms in EU Member States 2011: tax policy challenges for economic growth and fiscal sustainability," Taxation Papers 28, Directorate General Taxation and Customs Union, European Commission.
    3. Normann Lorenz & Dominik Sachs, 2012. "Optimal Participation Taxes and Efficient Transfer Phase-Out," Working Paper Series of the Department of Economics, University of Konstanz 2012-37, Department of Economics, University of Konstanz.
    4. Xi CHEN & Ioana SALAGEAN & Benteng ZOU, 2016. "Optimal Income Taxation for the Alleviation of Working-Poverty When Domestic Work is Rewarded," CREA Discussion Paper Series 16-01, Center for Research in Economic Analysis, University of Luxembourg.
    5. Ravi Kanbur & Jukka Pirttilä & Matti Tuomala & Tuuli Ylinen, 2015. "Optimal taxation and public provision for poverty reduction," WIDER Working Paper Series 054, World Institute for Development Economic Research (UNU-WIDER).
    6. repec:kap:itaxpf:v:25:y:2018:i:1:d:10.1007_s10797-017-9443-6 is not listed on IDEAS
    7. Gerritsen, Aart, 2016. "Optimal taxation when people do not maximize well-being," Journal of Public Economics, Elsevier, vol. 144(C), pages 122-139.
    8. David (David Patrick) Madden & Michael Savage, 2015. "Which Households Matter Most? Capturing Equity Considerations in Tax Reform via Generalised Social Marginal Welfare Weights," Working Papers 201502, School of Economics, University College Dublin.
    9. Marcelo Arbex & Enlinson Mattos, 2010. "Poverty and the Optimal General Income Tax-cum-Audit Policy," Working Papers 02-2010, Universidade de São Paulo, Faculdade de Economia, Administração e Contabilidade de Ribeirão Preto.

    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

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