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Optimal taxation in the extensive model

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  • Choné, Philippe
  • Laroque, Guy

Abstract

We study optimal taxation under extensive preferences: the agents[modifier letter apostrophe] utilities are constant for positive actions up to a maximal productivity level. Utilities may be discontinuous at the origin, reflecting fixed costs of participation. Allowing for general distributions of work opportunity costs and productivity and for income effects, we characterize optimal, incentive-compatible tax schedules. We then give sufficient conditions for society to desire redistribution. When these conditions hold, upward distortions of the financial incentives to work can only occur for low-skilled workers. Such upwards distortions are indeed always present when the fixed participation costs are pecuniary.

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  • Choné, Philippe & Laroque, Guy, 2011. "Optimal taxation in the extensive model," Journal of Economic Theory, Elsevier, vol. 146(2), pages 425-453, March.
  • Handle: RePEc:eee:jetheo:v:146:y:2011:i:2:p:425-453
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    Cited by:

    1. Jacquet, Laurence & Lehmann, Etienne & Van der Linden, Bruno, 2013. "Optimal redistributive taxation with both extensive and intensive responses," Journal of Economic Theory, Elsevier, vol. 148(5), pages 1770-1805.
    2. Kory Kroft & Kucko Kavan & Etienne Lehmann & Johannes Schmieder, 2015. "Optimal Income Taxation with Unemployment and Wage Responses: A Sufficient Statistics Approach," Working Papers hal-01292126, HAL.
    3. Craig Brett & Laurence Jacquet, 2015. "Workforce or workfare? The optimal use of work requirements when labour is supplied along the extensive margin," Canadian Journal of Economics, Canadian Economics Association, vol. 48(5), pages 1855-1882, December.
    4. Normann Lorenz & Dominik Sachs, 2011. "Optimal Nonlinear Taxation, Minimum Hours, and the Earned Income Tax Credit," Research Papers in Economics 2011-11, University of Trier, Department of Economics.
    5. Marios Karabarbounis, 2012. "Heterogeneity in Labor Supply Elasticity and Optimal Taxation," 2012 Meeting Papers 655, Society for Economic Dynamics.
    6. repec:bla:scandj:v:119:y:2017:i:4:p:910-938 is not listed on IDEAS
    7. Laurence JACQUET & Etienne LEHMANN & Bruno VAN DER LINDEN, 2012. "Signing distortions in optimal tax and other adverse selection problems with random participation," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2012003, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    8. Jacquet, Laurence & Lehmann, Etienne & Van der Linden, Bruno, 2011. "Optimal Redistributive Taxation with Both Labor Supply and Labor Demand Responses," IZA Discussion Papers 5642, Institute for the Study of Labor (IZA).
    9. Robin Boadway & Zhen Song & Jean-François Tremblay, 2017. "Optimal Income Taxation and Job Choice," Scandinavian Journal of Economics, Wiley Blackwell, vol. 119(4), pages 910-938, October.
    10. Lehmann, Etienne & Parmentier, Alexis & Van Der Linden, Bruno, 2011. "Optimal income taxation with endogenous participation and search unemployment," Journal of Public Economics, Elsevier, pages 1523-1537.
    11. Laurence Jacquet & Etienne lehmann & Bruno Van Der Linden, 2012. "Signing distortions in optimal tax or other adverse selection models with random participation," THEMA Working Papers 2012-27, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    12. FitzRoy, Felix & Jin, Jim, 2011. "Efficient redistribution: Comparing basic income with unemployment benefit," HWWI Research Papers 107, Hamburg Institute of International Economics (HWWI).
    13. Brett, Craig & Jacquet, Laurence, 2011. "Workforce or Workfare?," Discussion Paper Series in Economics 8/2011, Norwegian School of Economics, Department of Economics.
    14. Laurence Jacquet & Etienne Lehmann & Bruno Linden, 2014. "Optimal income taxation with Kalai wage bargaining and endogenous participation," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 42(2), pages 381-402, February.
    15. Michau, Jean-Baptiste, 2014. "Optimal redistribution: A life-cycle perspective," Journal of Public Economics, Elsevier, vol. 111(C), pages 1-16.
    16. Findeisen, Sebastian & Sachs, Dominik, 2016. "Education and optimal dynamic taxation: The role of income-contingent student loans," Journal of Public Economics, Elsevier, pages 1-21.
    17. Jean-Baptiste Michau, 2011. "Optimal Redistribution with Intensive and Extensive Labor Supply Margins: A Life-Cycle Perspective," Working Papers hal-00639121, HAL.
    18. Brigitte Baalen & Tobias Müller, 2014. "Social welfare effects of tax-benefit reform under endogenous participation and unemployment: an ordinal approach," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(2), pages 198-227, April.
    19. Bierbrauer Felix J., 2016. "Effizienz oder Gerechtigkeit?," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 17(1), pages 2-24, April.
    20. Felix FitzRoy & Jim Jin, 2015. "A Basic Income Can Raise Employment and Welfare for a Majority," Discussion Paper Series, Department of Economics 201508, Department of Economics, University of St. Andrews.
    21. Kavan Kucko & Johannes Schmieder & Etienne Lehmann & Kory Kroft, 2015. "Optimal Income Taxation under Unemployment: A Sufficient Statistics Approach," 2015 Meeting Papers 680, Society for Economic Dynamics.
    22. Felix Bierbrauer, 2016. "Effizienz oder Gerechtigkeit? Ungleiche Einkommen, ungleiche Vermögen und die Theorie der optimalen Besteuerung," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2016_03, Max Planck Institute for Research on Collective Goods.

    More about this item

    Keywords

    Optimal taxation Extensive model Welfare;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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