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A comparison of optimal tax policies when compensation or responsibility matter

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  • Jacquet, Laurence
  • Van de Gaer, Dirk

Abstract

This paper examines optimal redistribution in a model with high- and low-skilled individuals with heterogeneous tastes for labor. We compare the extent to which optimal policies based on different normative criteria obey the principles of compensation (for differential skills) and responsibility (for preferences for labor) when labor supply is along the extensive margin. With heterogeneity in skills and preferences, traditional Welfarist criteria including Utilitarianism present unappealing policy recommendations in some scenarios as they fail to take compensation and responsibility issues into account. Criteria from the social-choice literature perform better in this regard in first and second best. More importantly, these equality of opportunity criteria push the second best policy away from an Earned Income Tax Credit and in the direction of a Negative Income Tax.

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  • Jacquet, Laurence & Van de Gaer, Dirk, 2011. "A comparison of optimal tax policies when compensation or responsibility matter," Journal of Public Economics, Elsevier, vol. 95(11), pages 1248-1262.
  • Handle: RePEc:eee:pubeco:v:95:y:2011:i:11:p:1248-1262 DOI: 10.1016/j.jpubeco.2010.05.005
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    Citations

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    Cited by:

    1. Ponthiere, Gregory, 2016. "Pollution, unequal lifetimes and fairness," Mathematical Social Sciences, Elsevier, vol. 82(C), pages 49-64.
    2. Paolo Brunori & Flaviana Palmisano & Vito Peragine, 2014. "Income taxation and equity: New dominance criteria and an application to Romania," Working Papers 348, ECINEQ, Society for the Study of Economic Inequality.
    3. Erwin Ooghe & Andreas Peichl, 2015. "Fair and Efficient Taxation under Partial Control," Economic Journal, Royal Economic Society, vol. 125(589), pages 2024-2051, December.
    4. X. Ramos & D. Van De Gaer, 2012. "Empirical Approaches to Inequality of Opportunity: Principles, Measures, and Evidence," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 12/792, Ghent University, Faculty of Economics and Business Administration.
    5. Giacomo Valletta, 2014. "Health, fairness and taxation," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 43(1), pages 101-140, June.
    6. Ooghe, Erwin & Peichl, Andreas, 2010. "Fair and Efficient Taxation under Partial Control: Theory and Evidence," IZA Discussion Papers 5388, Institute for the Study of Labor (IZA).
    7. Jacquet, Laurence & Van de Gaer, Dirk, 2011. "A comparison of optimal tax policies when compensation or responsibility matter," Journal of Public Economics, Elsevier, pages 1248-1262.
    8. Akay, Alpaslan & Bargain, Olivier & Jara, Xavier, 2017. "'Fair' Welfare Comparisons with Heterogeneous Tastes: Subjective versus Revealed Preferences," IZA Discussion Papers 10908, Institute for the Study of Labor (IZA).
    9. Laurence Jacquet & Dirk Van de Gaer, 2015. "Politiques fiscales optimales pour les bas revenus et principe de compensation," Revue économique, Presses de Sciences-Po, vol. 66(3), pages 579-600.
    10. Fleurbaey, Marc & Maniquet, François, 2015. "Optimal taxation theory and principles of fairness," CORE Discussion Papers 2015005, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

    More about this item

    Keywords

    Optimal income taxation; Equality of opportunity; Heterogeneous preferences for labor;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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