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Pareto-Improving Income Tax Reform

Author

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  • Peter Sinclair

Abstract

This paper examines two tax regimes in a world where abilities to earn differ. It compares the distributions of utilities under a “flat” tax regime where all income is subject to a common tax rate, and proceeds finance a common transfer paid to all, with one with a menu of tax rates and transfers from which each can select the combination that suits him or her best. When the two regimes are optimized under a social welfare function that weights minimum utilities enough, or reflects a large enough requirement for government spending, it turns out that everyone is better off in the second regime than the first.

Suggested Citation

  • Peter Sinclair, 2007. "Pareto-Improving Income Tax Reform," Discussion Papers 07-10, Department of Economics, University of Birmingham.
  • Handle: RePEc:bir:birmec:07-10
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    File URL: ftp://ftp.bham.ac.uk/pub/RePEc/pdf/Paper10.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Non-linear income tax; redistribution; Pareto improving tax reform;

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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