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Redistributive Taxation in the Roy Model

  • Casey Rothschild
  • Florian Scheuer

We consider optimal redistribution in a model where individuals can self-select into one of several possible sectors based on heterogeneity in a multidimensional skill vector. We first show that when the government does not observe the sectoral choice or underlying skills of its citizens, the constrained Pareto frontier can be implemented with a single nonlinear income tax. We then characterize this optimal tax schedule. If sectoral inputs are complements, a many-sector model with self-selection leads to optimal income taxes that are less progressive than the corresponding taxes in a standard single-sector model under natural conditions. However, they are more progressive than in canonical multisector economies with discrete types and without occupational choice or overlapping sectoral wage distributions. JEL Codes: H2, D5, D8, E2, E6, J3, J6. Copyright 2013, Oxford University Press.

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Article provided by Oxford University Press in its journal The Quarterly Journal of Economics.

Volume (Year): 128 (2013)
Issue (Month): 2 ()
Pages: 623-668

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Handle: RePEc:oup:qjecon:v:128:y:2013:i:2:p:623-668
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