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Optimal Participation Taxes

  • Vidar Christiansen
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    Addressing extensive labour supply responses, the literature has established a case for larger transfers to the working poor than to even poorer non-working people. This paper casts new light on this result. I argue that the result hinges crucially on the labour supply responses of people in income brackets above that of the working poor. Then distinguishing between more and less poor working people, I show that if a single working type faces a negative tax, it is the poorer one. I extend the analysis by endogenising wages and show that key conditions will be of the same form as with exogenous wages.

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    File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2012/wp-cesifo-2012-09/cesifo1_wp3941.pdf
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    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3941.

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    Date of creation: 2012
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    Handle: RePEc:ces:ceswps:_3941
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    1. Joseph E. Stiglitz, 1981. "Self-Selection and Pareto Efficient Taxation," NBER Working Papers 0632, National Bureau of Economic Research, Inc.
    2. Immervoll, Herwig & Kleven, Henrik Jacobsen & Kreiner, Claus Thustrup & Verdelin, Nicolaj, 2011. "Optimal tax and transfer programs for couples with extensive labor supply responses," Journal of Public Economics, Elsevier, vol. 95(11), pages 1485-1500.
    3. Diamond, P., 1980. "Income taxation with fixed hours of work," Journal of Public Economics, Elsevier, vol. 13(1), pages 101-110, February.
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