Understanding The Evolution Of Inequality During Transition: The Optimal Income Taxation
What explains the spectacular increases in inequality of disposable income in transitional economies of Central and Eastern Europe? There are at least two possible explanations. First, the pre-tax distribution of income became more unequal because of the shift to a market economy. Second, the degree of progressivity of the income tax system declined. But each of these factors is in turn determined by other structural changes associated with transition-notably, the decrease in public provision of key public goods, the decrease in non income tax revenue sources such as profits from public production, and perhaps a decline in society's inequality aversion. This paper develops a framework in which these different forces on inequality can be assessed. Using a simple two-type and two-sector optimal income tax model with endogenous wages, we first of all show that a decrease in the provision of public goods could indeed lead to increasing "inherent" inequality, in other words inequality in market incomes. It then deploys the Mirrlees model of optimal non- linear taxation to assess the relative impacts of this increase in inherent inequality, the decreasing sources of non income tax revenue, and possible declines in inequality aversion; to get a numerical feel for their possible impacts on inequality.
|Date of creation:||2002|
|Date of revision:|
|Contact details of provider:|| Postal: Warren Hall, Ithaca NY 14853|
Web page: http://aem.cornell.edu/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Andrea Brandolini & Anthony B. Atkinson, 2001. "Promise and Pitfalls in the Use of "Secondary" Data-Sets: Income Inequality in OECD Countries As a Case Study," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 771-799, September.
- Kanbur, Ravi & Tuomala, Matti, 1994. " Inherent Inequality and the Optimal Graduation of Marginal Tax Rates," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(2), pages 275-82.
- Naito, Hisahiro, 1999. "Re-examination of uniform commodity taxes under a non-linear income tax system and its implication for production efficiency," Journal of Public Economics, Elsevier, vol. 71(2), pages 165-188, February.
- Ritva Immonen & Ravi Kanbur & Michael Keen & Matti Tuomala, 1994. "Tagging and taxing: the optimal use of categorical and income information in designing tax/transfer schemes," IFS Working Papers W94/05, Institute for Fiscal Studies.
- Newbery, David M., 1997. "Optimal tax rates and tax design during systemic reform," Journal of Public Economics, Elsevier, vol. 63(2), pages 177-206, January.
- Emmanuel Saez, 2001. "Using Elasticities to Derive Optimal Income Tax Rates," Review of Economic Studies, Oxford University Press, vol. 68(1), pages 205-229.
- Atkinson,Anthony Barnes & Micklewright,John, 1992.
"Economic Transformation in Eastern Europe and the Distribution of Income,"
Cambridge University Press, number 9780521438827, june. pag.
- Atkinson,Anthony Barnes & Micklewright,John, 1992. "Economic Transformation in Eastern Europe and the Distribution of Income," Cambridge Books, Cambridge University Press, number 9780521433297, june. pag.
- Boadway, Robin & Cuff, Katherine & Marchand, Maurice, 2000.
" Optimal Income Taxation with Quasi-linear Preferences Revisited,"
Journal of Public Economic Theory,
Association for Public Economic Theory, vol. 2(4), pages 435-60.
- Robin Boadway & Katherine Cuff & Maurice Marchand, 1999. "Optimal Income Taxation With Quasi-Linear Preferences Revisited," Working Papers 984, Queen's University, Department of Economics.
- BOADWAY, Robin & CUFF, Katherine & MARCHAND, Maurice, . "Optimal income taxation with quasi-linear preferences revisited," CORE Discussion Papers RP 1466, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- J. A. Mirrlees, 1976.
"Optimal Tax Theory: A Synthesis,"
176, Massachusetts Institute of Technology (MIT), Department of Economics.
- Dasgupta, Indraneel & Kanbur, Ravi, 2001. "Class, Community, Inequality," Working Papers 127671, Cornell University, Department of Applied Economics and Management.
- Weymark, John A., 1986. "A reduced-form optimal nonlinear income tax problem," Journal of Public Economics, Elsevier, vol. 30(2), pages 199-217, July.
- Lollivier, Stefan & Rochet, Jean-Charles, 1983. "Bunching and second-order conditions: A note on optimal tax theory," Journal of Economic Theory, Elsevier, vol. 31(2), pages 392-400, December.
- Tuomala, Matti, 1984. "On the optimal income taxation : Some further numerical results," Journal of Public Economics, Elsevier, vol. 23(3), pages 351-366, April.
- Tuomala, Matti, 1990. "Optimal Income Tax and Redistribution," OUP Catalogue, Oxford University Press, number 9780198286059, May.
When requesting a correction, please mention this item's handle: RePEc:ags:cudawp:7240. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search)
If references are entirely missing, you can add them using this form.