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Tagging with leisure needs

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  • Pierre Pestieau
  • Maria Racioenero

Abstract

We study optimal redistributive taxes when individuals differ in two characteristics - earning ability and leisure needs - assumed to be imperfectly correlated. Individuals have private information about their abilities but needs are observable. With two different levels of observable needs the population can be separated into two groups and needs may be used as a tag. We first assume that the social planner considers individuals should be compensated for their leisure needs and characterize the optimal redistributive policy, and the extent of compensation for needs, with tagging. We also consider an alternative social objective in which individuals are deemed responsible for their needs.

Suggested Citation

  • Pierre Pestieau & Maria Racioenero, 2011. "Tagging with leisure needs," ANU Working Papers in Economics and Econometrics 2011-553, Australian National University, College of Business and Economics, School of Economics.
    • Handle: RePEc:acb:cbeeco:2011-553
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    File URL: https://www.cbe.anu.edu.au/researchpapers/econ/wp553.pdf
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    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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