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Optimal Non-Linear Income Taxation For The Alleviation Of Income Poverty

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  • Kanbur, Ravi
  • Keen, Michael

Abstract

This paper is concerned with the optimal use of income information in the design of tax/transfer systems to alleviate poverty. The issue is one of optimal non-linear income taxation, but using a non-welfarist objective function that seems to accord well with the common concerns of policy debbate: an income-based poverty index. We show that one of the key results of the wlefarist literature is overturned: if is is desirable for everybody to work, the optimal marginal tax rate on the very poorest individuals is strictly negative. More generally, it is argued that the non-welfarist perspective points towards lower marginal tax rates in the lower part of the distribution that does the welfarist. Numerical simulations suggest, however, that this effect is of limited quantitative significance. Using conventional functional forms and parameter values, optimal marginal tax rates on the poor are in the 60-70% range.

Suggested Citation

  • Kanbur, Ravi & Keen, Michael, 1990. "Optimal Non-Linear Income Taxation For The Alleviation Of Income Poverty," Economic Research Papers 268488, University of Warwick - Department of Economics.
  • Handle: RePEc:ags:uwarer:268488
    DOI: 10.22004/ag.econ.268488
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    References listed on IDEAS

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    1. Besley, Timothy J & Kanbur, S M Ravi, 1988. "Food Subsidies and Poverty Alleviation," Economic Journal, Royal Economic Society, vol. 98(392), pages 701-719, September.
    2. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
    3. Besley, Timothy, 1990. "Means Testing versus Universal Provision in Poverty Alleviation Programmes," Economica, London School of Economics and Political Science, vol. 57(225), pages 119-129, February.
    4. Atkinson, A B, 1987. "On the Measurement of Poverty," Econometrica, Econometric Society, vol. 55(4), pages 749-764, July.
    5. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-766, May.
    6. Tuomala, Matti, 1990. "Optimal Income Tax and Redistribution," OUP Catalogue, Oxford University Press, number 9780198286059.
    7. Kanbur, Ravi & Keen, Michael, 1988. "Poverty, Incentives And Linear Income Taxation," Economic Research Papers 272843, University of Warwick - Department of Economics.
    8. King, Mervyn A., 1983. "Welfare analysis of tax reforms using household data," Journal of Public Economics, Elsevier, vol. 21(2), pages 183-214, July.
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    More about this item

    Keywords

    Financial Economics; Food Security and Poverty;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L68 - Industrial Organization - - Industry Studies: Manufacturing - - - Appliances; Furniture; Other Consumer Durables

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