IDEAS home Printed from https://ideas.repec.org/a/kap/itaxpf/v14y2007i3p295-325.html
   My bibliography  Save this article

Optimal income transfers

Author

Listed:
  • Louis Kaplow

Abstract

A substantial literature addresses the design of transfer programs and policies, including the negative income tax, other means-tested transfers, the earned income tax credit, categorical assistance, and work inducements. This work is largely independent of that on the optimal nonlinear income tax, yet formulations of such a tax necessarily address how low-income individuals should be treated. This paper draws on the optimal income taxation literature to illuminate the analysis of transfer programs, including the level and shape of marginal tax rates (including phase-outs), the structure of categorical assistance, and the role of work inducements in an optimal income transfer scheme. Copyright Springer Science + Business Media, LLC 2007

Suggested Citation

  • Louis Kaplow, 2007. "Optimal income transfers," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(3), pages 295-325, June.
    • Handle: RePEc:kap:itaxpf:v:14:y:2007:i:3:p:295-325
    DOI: 10.1007/s10797-006-9004-x
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s10797-006-9004-x
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s10797-006-9004-x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Slemrod, Joel & Yitzhaki, Shlomo & Mayshar, Joram & Lundholm, Michael, 1994. "The optimal two-bracket linear income tax," Journal of Public Economics, Elsevier, vol. 53(2), pages 269-290, February.
    2. Boone, Jan & Bovenberg, Lans, 2004. "The optimal taxation of unskilled labor with job search and social assistance," Journal of Public Economics, Elsevier, vol. 88(11), pages 2227-2258, September.
    3. Robert A. Moffitt & Mark Wilhelm, 1998. "Taxation and the Labor Supply: Decisions of the Affluent," NBER Working Papers 6621, National Bureau of Economic Research, Inc.
    4. Levine, Phillip B. & Zimmerman, David J., 2005. "Children's welfare exposure and subsequent development," Journal of Public Economics, Elsevier, vol. 89(1), pages 31-56, January.
    5. Mickey Hepner & W. Robert Reed, 2004. "The Effect of Welfare on Work and Marriage: A View from the States," Cato Journal, Cato Journal, Cato Institute, vol. 24(3), pages 349-370, Fall.
    6. Martin Feldstein, 1999. "Tax Avoidance And The Deadweight Loss Of The Income Tax," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 674-680, November.
    7. Gruber, Jon & Saez, Emmanuel, 2002. "The elasticity of taxable income: evidence and implications," Journal of Public Economics, Elsevier, vol. 84(1), pages 1-32, April.
    8. Hugo Benitez-Silva & Moshe Buchinsky & John Rust, 2004. "How Large are the Classification Errors in the Social Security Disability Award Process?," NBER Working Papers 10219, National Bureau of Economic Research, Inc.
    9. Wilson, Paul W. & Cline, Robert, 1994. "State Welfare Reform: Integrating Tax Credits and Income Transfers," National Tax Journal, National Tax Association, vol. 47(3), pages 655-76, September.
    10. Stiglitz, Joseph E., 1987. "Pareto efficient and optimal taxation and the new new welfare economics," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 15, pages 991-1042, Elsevier.
    11. Mirrlees, J. A., 1976. "Optimal tax theory : A synthesis," Journal of Public Economics, Elsevier, vol. 6(4), pages 327-358, November.
    12. Keane, Michael & Moffitt, Robert, 1998. "A Structural Model of Multiple Welfare Program Participation and Labor Supply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 553-589, August.
    13. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 38(2), pages 175-208.
    14. Jagadeesh Gokhale & Laurence J. Kotlikoff & Alexi Sluchynsky, 2002. "Does It Pay to Work?," NBER Working Papers 9096, National Bureau of Economic Research, Inc.
    15. repec:bla:econom:v:65:y:1998:i:258:p:179-92 is not listed on IDEAS
    16. Michalopoulos, Charles & Robins, Philip K. & Card, David, 2005. "When financial work incentives pay for themselves: evidence from a randomized social experiment for welfare recipients," Journal of Public Economics, Elsevier, vol. 89(1), pages 5-29, January.
    17. Guy Laroque, 2005. "Income Maintenance and Labor Force Participation," Econometrica, Econometric Society, vol. 73(2), pages 341-376, March.
    18. Kaplow, Louis, 1995. "A note on subsidizing gifts," Journal of Public Economics, Elsevier, vol. 58(3), pages 469-477, November.
    19. Chone, Philippe & Laroque, Guy, 2005. "Optimal incentives for labor force participation," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 395-425, February.
    20. Seade, J. K., 1977. "On the shape of optimal tax schedules," Journal of Public Economics, Elsevier, vol. 7(2), pages 203-235, April.
    21. Fortin, Bernard & Truchon, Michel & Beausejour, Louis, 1993. "On reforming the welfare system : Workfare meets the negative income tax," Journal of Public Economics, Elsevier, vol. 51(2), pages 119-151, June.
    22. Tuomala, Matti, 1990. "Optimal Income Tax and Redistribution," OUP Catalogue, Oxford University Press, number 9780198286059.
    23. Moffitt, Robert A., 2002. "Welfare programs and labor supply," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 34, pages 2393-2430, Elsevier.
    24. Mead, Lawrence M., 2001. "Implementing Work Requirements in Wisconsin," Journal of Public Policy, Cambridge University Press, vol. 21(3), pages 239-264, June.
    25. repec:bla:scandj:v:96:y:1994:i:2:p:275-82 is not listed on IDEAS
    26. Brett, Craig, 1998. "Who Should Be on Workfare? The Use of Work Requirements as Part of an Optimal Tax Mix," Oxford Economic Papers, Oxford University Press, vol. 50(4), pages 607-622, October.
    27. Ritva Immonen & Ravi Kanbur & Michael Keen & Matti Tuomala, 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.
    28. Parsons, Donald O, 1991. "Self-Screening in Targeted Public Transfer Programs," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 859-876, August.
    29. Mirrlees, J A, 1990. "Taxing Uncertain Incomes," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 34-45, January.
    30. Dasgupta, Partha & Hammond, Peter, 1980. "Fully progressive taxation," Journal of Public Economics, Elsevier, vol. 13(2), pages 141-154, April.
    31. Dickert, Stacy & Houser, Scott & Scholz, John Karl, 1994. "Taxes and the Poor: A Microsimulation Study of Implicit and Explicit Taxes," National Tax Journal, National Tax Association;National Tax Journal, vol. 47(3), pages 621-638, September.
    32. Emmanuel Saez, 2001. "Using Elasticities to Derive Optimal Income Tax Rates," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(1), pages 205-229.
    33. Michel Strawczynski & Momi Dahan, 2000. "Optimal Income Taxation: An Example with a U-Shaped Pattern of Optimal Marginal Tax Rates: Comment," American Economic Review, American Economic Association, vol. 90(3), pages 681-686, June.
    34. Auerbach, Alan J. & Hines, James Jr., 2002. "Taxation and economic efficiency," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 21, pages 1347-1421, Elsevier.
    35. Richard Blundell & Alan Duncan & Julian McCrae & Costas Meghir, 2000. "Evaluating In-Work Benefit Reform: The Working Families Tax Credit in the U.K," JCPR Working Papers 160, Northwestern University/University of Chicago Joint Center for Poverty Research.
    36. Gerald Auten & Robert Carroll, 1999. "The Effect Of Income Taxes On Household Income," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 681-693, November.
    37. Emmanuel Saez, 2002. "Optimal Income Transfer Programs: Intensive versus Extensive Labor Supply Responses," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(3), pages 1039-1073.
    38. Wilson, Paul W. & Cline, Robert, 1994. "State Welfare Reform: Integrating Tax Credits and Income Transfers," National Tax Journal, National Tax Association;National Tax Journal, vol. 47(3), pages 655-676, September.
    39. Parsons, Donald O., 1996. "Imperfect 'tagging' in social insurance programs," Journal of Public Economics, Elsevier, vol. 62(1-2), pages 183-207, October.
    40. Diamond, Peter & Sheshinski, Eytan, 1995. "Economic aspects of optimal disability benefits," Journal of Public Economics, Elsevier, vol. 57(1), pages 1-23, May.
    41. Stern, Nicholas, 1982. "Optimum taxation with errors in administration," Journal of Public Economics, Elsevier, vol. 17(2), pages 181-211, March.
    42. Alan D. Viard, 2001. "Some Results on the Comparative Statics of Optimal Categorical Transfer Payments," Public Finance Review, , vol. 29(2), pages 148-180, March.
    43. Antel, John J, 1992. "The Intergenerational Transfer of Welfare Dependency: Some Statistical Evidence," The Review of Economics and Statistics, MIT Press, vol. 74(3), pages 467-473, August.
    44. Diamond, Peter A, 1998. "Optimal Income Taxation: An Example with a U-Shaped Pattern of Optimal Marginal Tax Rates," American Economic Review, American Economic Association, vol. 88(1), pages 83-95, March.
    45. Diamond, P., 1980. "Income taxation with fixed hours of work," Journal of Public Economics, Elsevier, vol. 13(1), pages 101-110, February.
    46. Ebert, Udo, 1992. "A reexamination of the optimal nonlinear income tax," Journal of Public Economics, Elsevier, vol. 49(1), pages 47-73, October.
    47. Timothy Besley & Stephen Coate, 1995. "The Design of Income Maintenance Programmes," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(2), pages 187-221.
    48. Jesus Seade, 1982. "On the Sign of the Optimum Marginal Income Tax," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(4), pages 637-643.
    49. Brito, Dagobert L & Oakland, William H, 1977. "Some Properties of the Optimal Income-Tax," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 407-423, June.
    50. Bennett, John, 1987. "The Second-Best Lump-Sum Taxation of Observable Characteristics," Public Finance = Finances publiques, , vol. 42(2), pages 227-235.
    51. Robert A. Moffitt, 2003. "Means-Tested Transfer Programs in the United States," NBER Books, National Bureau of Economic Research, Inc, number moff03-1.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Barrientos, Armando, 2012. "Social Transfers and Growth: What Do We Know? What Do We Need to Find Out?," World Development, Elsevier, vol. 40(1), pages 11-20.
    2. Ashley C. Craig, 2023. "Optimal Income Taxation with Spillovers from Employer Learning," American Economic Journal: Economic Policy, American Economic Association, vol. 15(2), pages 82-125, May.
    3. Gregory Acs & Eric Toder, 2007. "Should we subsidize work? Welfare reform, the earned income tax credit and optimal transfers," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(3), pages 327-343, June.
    4. Matti Tuomala, 2010. "On optimal non-linear income taxation: numerical results revisited," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(3), pages 259-270, June.
    5. 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.
    6. Florian Buhlmann & Benjamin Elsner & Andreas Peichl, 2018. "Tax refunds and income manipulation: evidence from the EITC," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(6), pages 1490-1518, December.
    7. Robert Moffitt, 2006. "Welfare work Requirements with Paternalistic Government Preferences," Economic Journal, Royal Economic Society, vol. 116(515), pages 441-458, November.
    8. Ray Rees & Thor O. Thoresen & Trine E. Vattø, 2023. "Alternatives to Paying Child Benefit to the Rich: Means‐Testing or Higher Tax?," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 56(3), pages 328-354, September.
    9. Guyonne Kalb & Thor Thoresen, 2010. "A comparison of family policy designs of Australia and Norway using microsimulation models," Review of Economics of the Household, Springer, vol. 8(2), pages 255-287, June.
    10. N. Gregory Mankiw & Matthew Weinzierl, 2010. "The Optimal Taxation of Height: A Case Study of Utilitarian Income Redistribution," American Economic Journal: Economic Policy, American Economic Association, vol. 2(1), pages 155-176, February.
    11. 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.
    12. Tayibov, Khayyam, 2024. "Tagging Birthplace for Optimal Tax Policy, Redistribution, and Welfare," Working Papers in Economics and Statistics 9/2024, Linnaeus University, School of Business and Economics, Department of Economics and Statistics.
    13. Simeon Schächtele, 2020. "Tax Responses at Low Taxable Incomes: Evidence from Germany," Fiscal Studies, John Wiley & Sons, vol. 41(2), pages 411-439, June.
    14. Louis Kaplow, 2011. "An Optimal Tax System," NBER Working Papers 17214, National Bureau of Economic Research, Inc.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Louis Kaplow, 2022. "Optimal Income Taxation," NBER Working Papers 30199, National Bureau of Economic Research, Inc.
    2. François Bourguignon & Amedeo Spadaro, 2012. "Tax–benefit revealed social preferences," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 10(1), pages 75-108, March.
    3. Robert Moffitt, 2006. "Welfare work Requirements with Paternalistic Government Preferences," Economic Journal, Royal Economic Society, vol. 116(515), pages 441-458, November.
    4. Auerbach, Alan J. & Hines, James Jr., 2002. "Taxation and economic efficiency," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 21, pages 1347-1421, Elsevier.
    5. Gian Maria Tomat, 2018. "The elasticity of personal income: evidence from survey data," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 35(2), pages 433-462, August.
    6. Boadway, Robin & Jacquet, Laurence, 2008. "Optimal marginal and average income taxation under maximin," Journal of Economic Theory, Elsevier, vol. 143(1), pages 425-441, November.
    7. Mathias Hungerbühler & Etienne Lehmann & Alexis Parmentier & Bruno Van Der Linden, 2006. "Optimal Redistributive Taxation in a Search Equilibrium Model," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(3), pages 743-767.
    8. Lehmann, Etienne & Parmentier, Alexis & Van Der Linden, Bruno, 2011. "Optimal income taxation with endogenous participation and search unemployment," Journal of Public Economics, Elsevier, vol. 95(11), pages 1523-1537.
    9. 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.
    10. 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.
    11. Laurence Jacquet, 2014. "Tagging and redistributive taxation with imperfect disability monitoring," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 42(2), pages 403-435, February.
    12. Thomas Piketty & Emmanuel Saez, 2012. "Optimal Labor Income Taxation," NBER Working Papers 18521, National Bureau of Economic Research, Inc.
    13. Oztek, Abdullah Selim, 2019. "A Characterization for Marginal Income Tax Schedules," MPRA Paper 103046, University Library of Munich, Germany, revised 02 Dec 2019.
    14. Roland Iwan Luttens & Erwin Ooghe, 2007. "Is it Fair to ‘Make Work Pay’?," Economica, London School of Economics and Political Science, vol. 74(296), pages 599-626, November.
    15. Boadway,Robin & Cuff,Katherine, 2022. "Tax Policy," Cambridge Books, Cambridge University Press, number 9781108949453, September.
    16. Robin Boadway, 2011. "Viewpoint: Innovations in the theory and practice of redistribution policy," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 44(4), pages 1138-1183, November.
    17. Ruud de Mooij, 2007. "Reinventing the Dutch tax-benefit system; exploring the frontier of the equity-efficiency trade-off," CPB Discussion Paper 88, CPB Netherlands Bureau for Economic Policy Analysis.
    18. LUTTENS, Roland Iwan & OOGHE, Erwin, 2006. "Is it fair to ‘make work pay’ ?," LIDAM Discussion Papers CORE 2006026, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    19. Simula, Laurent & Trannoy, Alain, 2010. "Optimal income tax under the threat of migration by top-income earners," Journal of Public Economics, Elsevier, vol. 94(1-2), pages 163-173, February.
    20. Alari Paulus, 2016. "The antipoverty performance of universal and means-tested benefits with costly take-up," ImPRovE Working Papers 16/12, Herman Deleeck Centre for Social Policy, University of Antwerp.

    More about this item

    Keywords

    Categorical assistance; Income maintenance; Optimal taxation; Transfer programs; Welfare; Work requirements;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:itaxpf:v:14:y:2007:i:3:p:295-325. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.