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Optimal Taxes and Transfers under Partial Information


  • Homburg Stefan


  • Lohse Tim

    () (Chair of Public Finance, School of Economics and Management, University of Hannover, Königsworther Platz 1, D-30167 Hannover, Germany)


Effective from 2005, benefits for long-term unemployed have been reduced in Germany to the level of social assistance. This measure reflects the view that “all who are able to work, should work” - a view which makes sense only if the government can distinguish the disabled from the productive. In this paper we augment the standard model of optimal taxation, where the government has no information about individual productivities, by this very assumption: Partial information means that the government can distinguish the disabled from the productive, but cannot distinguish among the different productive types. An interesting proposition about the shape of optimal tax-transfer schemes under partial information is derived. Moreover, it is shown that unemployment on the side of the productive poor may still be optimal.

Suggested Citation

  • Homburg Stefan & Lohse Tim, 2005. "Optimal Taxes and Transfers under Partial Information," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 225(6), pages 622-629, December.
  • Handle: RePEc:jns:jbstat:v:225:y:2005:i:6:p:622-629

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    References listed on IDEAS

    1. Immonen, Ritva, et al, 1998. "Tagging and Taxing: The Optimal Use of Categorical and Income Information in Designing Tax/Transfer Schemes," Economica, London School of Economics and Political Science, vol. 65(258), pages 179-192, May.
    2. Seade, J. K., 1977. "On the shape of optimal tax schedules," Journal of Public Economics, Elsevier, vol. 7(2), pages 203-235, April.
    3. Tuomala, Matti, 1990. "Optimal Income Tax and Redistribution," OUP Catalogue, Oxford University Press, number 9780198286059, June.
    4. Emmanuel Saez, 2002. "Optimal Income Transfer Programs: Intensive versus Extensive Labor Supply Responses," The Quarterly Journal of Economics, Oxford University Press, vol. 117(3), pages 1039-1073.
    5. Stefan Homburg, 2001. "The Optimal Income Tax: Restatement and Extensions," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 58(4), pages 363-395, November.
    6. Boadway, Robin & Marceau, Nicolas & Sato, Motohiro, 1999. "Agency and the design of welfare systems," Journal of Public Economics, Elsevier, vol. 73(1), pages 1-30, July.
    7. Diamond, P., 1980. "Income taxation with fixed hours of work," Journal of Public Economics, Elsevier, vol. 13(1), pages 101-110, February.
    8. Katherine Cuff, 2000. "Optimality of workfare with heterogeneous preferences," Canadian Journal of Economics, Canadian Economics Association, vol. 33(1), pages 149-174, February.
    9. Timothy Besley & Stephen Coate, 1995. "The Design of Income Maintenance Programmes," Review of Economic Studies, Oxford University Press, vol. 62(2), pages 187-221.
    10. Ritva Immonen & Kanbur, Kanbur & Michael Keen & Matti Tuomola, 1994. "Tagging and taxing: the optimal use of categorical and income information in designing tax/transfer schemes," IFS Working Papers W94/05, Institute for Fiscal Studies.
    11. Chambers, Robert G., 1989. "Workfare or welfare?," Journal of Public Economics, Elsevier, vol. 40(1), pages 79-97, October.
    12. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
    13. Homburg, Stefan, 2002. "Optimal Marginal Tax Rates for Low Incomes: Positive, Negative, or Zero?," Hannover Economic Papers (HEP) dp-255, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    14. Homburg, Stefan, 2010. "Allgemeine Steuerlehre," EconStor Books, ZBW - German National Library of Economics, number 92547.
    15. Homburg, Stefan, 1998. "An Axiomatic Proof of Mirrlees' Formula," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 285-295.
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    Cited by:

    1. Tim Lohse, 2006. "Zum optimalen Verhältnis von Sozialhilfe und Arbeitslosengeld II [zwei] : Themenschwerpunkt Arbeitslosengeld II [zwei]," ifo Dresden berichtet, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(02), pages 16-19, 04.
    2. Krimmer, Pascal & Raffelhüschen, Bernd, 2007. "Grundsicherung in Deutschland: Analyse und Reformbedarf," FZG Discussion Papers 14, University of Freiburg, Research Center for Generational Contracts (FZG).
    3. Sterner, Cornelia, 2010. "Ein bedingungsloses Grundeinkommen in Form der negativen Einkommensteuer: Eine soziologische und finanzwissenschaftliche Analyse
      [An unconditional basic income in the form of the negative income ta
      ," MPRA Paper 39703, University Library of Munich, Germany, revised Jun 2012.
    4. repec:ces:ifodre:v:13:y:2006:i:02:p:s.16-19 is not listed on IDEAS

    More about this item


    Optimal taxation; employment; poverty; welfare;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs


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