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Optimal redistribution with heterogeneous preferences for leisure

  • BOADWAY, R.
  • MARCHAND, M.
  • PESTIEAU, P.
  • del MAR RACIONERO, M.

This paper examines the properties of the optimal nonlinear income tax when preferences are quasilinear in leisure and heterogeneous. Individuals differ in their ability and in their preferences for leisure. The government seeks to redistribute income. It can perfectly observe the level of endogenous income but cannot observe either ability or preferences. Theheterogeneity of preferences leads to problems of comparability between individual utilities which challenge the design of redistributive schemes. In particular, we analyze the consequences of adopting a utilitarian socialwelfare function where the government is allowed to give different weights to individuals wih different preferences. Under this particular social objective and given the quasilinearity of preferences, we are able to obtain closed-form solutions for the marginal tax rates and to examine the progressivity of the tax system according to the weights used.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2001025.

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Date of creation: 00 May 2001
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Handle: RePEc:cor:louvco:2001025
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  1. Robin Boadway & Katherine Cuff & Maurice Marchand, 1999. "Optimal Income Taxation With Quasi-Linear Preferences Revisited," Working Papers 984, Queen's University, Department of Economics.
  2. FLEURBAEY, Marc & MANIQUET, François, 1998. "Optimal income taxation: and ordinal approach," CORE Discussion Papers 1998065, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Katherine Cuff, 1998. "Optimality of Workfare with Heterogeneous Preferences," Working Papers 968, Queen's University, Department of Economics.
  4. Weymark, John A, 1987. "Comparative Static Properties of Optimal Nonlinear Income Taxes," Econometrica, Econometric Society, vol. 55(5), pages 1165-85, September.
  5. Weymark, John A., 1986. "A reduced-form optimal nonlinear income tax problem," Journal of Public Economics, Elsevier, vol. 30(2), pages 199-217, July.
  6. 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.
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