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Tagging with leisure needs

  • Pierre Pestieau
  • Maria Racioenero


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.

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Paper provided by Australian National University, College of Business and Economics, School of Economics in its series ANU Working Papers in Economics and Econometrics with number 2011-553.

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Length: 24 Pages
Date of creation: Sep 2011
Date of revision:
Handle: RePEc:acb:cbeeco:2011-553
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  9. Cremer, Helmuth & Pestieau, Pierre & Rochet, Jean-Charles, 2001. "Direct versus Indirect Taxation: The Design of the Tax Structure Revisted," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(3), pages 781-99, August.
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  17. N. Gregory Mankiw & Matthew C. Weinzierl, 2009. "The Optimal Taxation of Height: A Case Study of Utilitarian Income Redistribution," Harvard Business School Working Papers 09-139, Harvard Business School.
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