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Fair and Efficient Taxation under Partial Control

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  • Erwin Ooghe
  • Andreas Peichl

Abstract

We study fair and efficient tax-benefit schemes based on income and non-income factors under partial control. Partial control means that each factor is a specific mixture of unobserved ability (randomly drawn by nature) and effort (chosen by individuals who differ in tastes). Factors differ in the degree of control, ranging from no control (if only ability matters) to full control (if only effort matters). Fairness requires to compensate individuals for differences in well-being caused by differences in abilities, while at the same time preserving well-being differences caused by taste differences. We discuss first the general properties of fair and efficient tax-benefit schemes. Next, we study two special cases income taxation and tagging in detail. Finally, we derive testable conditions for the general case and discuss the empirical implementation.
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Suggested Citation

  • Erwin Ooghe & Andreas Peichl, 2015. "Fair and Efficient Taxation under Partial Control," Economic Journal, Royal Economic Society, vol. 125(589), pages 2024-2051, December.
  • Handle: RePEc:wly:econjl:v:125:y:2015:i:589:p:2024-2051
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    File URL: http://hdl.handle.net/10.1111/ecoj.2015.125.issue-589
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    References listed on IDEAS

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    Cited by:

    1. Jessen, Robin & Metzing, Maria & Rostam-Afschar, Davud, 2017. "Optimal taxation under different concepts of justness," Discussion Papers 2017/26, Free University Berlin, School of Business & Economics.
    2. Billette de Villemeur, Etienne & Leroux, Justin, 2016. "Accounting for Needs in Cost Sharing," MPRA Paper 73434, University Library of Munich, Germany.
    3. Erwin Ooghe, 2015. "Partial compensation/responsibility," Theory and Decision, Springer, vol. 78(2), pages 305-317, February.
    4. David Madden & Michael Savage, 2020. "Which households matter most? Capturing equity considerations in tax reform via generalised social marginal welfare weights," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(1), pages 153-193, February.
    5. Johannes Hermle & Andreas Peichl, 2018. "Jointly Optimal Taxes for Different Types of Income," CESifo Working Paper Series 7248, CESifo.

    More about this item

    JEL classification:

    • D6 - Microeconomics - - Welfare Economics
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty

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