Revisiting the Equity-Efficiency Trade-off: Taxation with Non-Cooperative Families
We consider an economy with intrahousehold inequality where household public goods like child care or care of the elderly are produced at home using time. Noncooperative behavior determines an inefficiently low provision of such goods, and the presence of contribution productivity differentials implies comparative advantages in home work versus market work. The joint consideration of optimal tax rules and tax reform rules establishes a presumption in favor of high progressivity achieved with a limited number of income brackets, possibly a flat-rate system. High progressivity is instrumental in remedying the inefficiency associated with the lack of cooperation, while limiting the differentiation of tax rates turns out to favor the full exploitation of comparative advantages.
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Volume (Year): 60 (2004)
Issue (Month): 4 (December)
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