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Optimal redistribution when different workers are indistinguishable

  • MARCHAND, Maurice
  • PESTIEAU, Pierre

Using the standard non linear income and commodity taxation framework this paper examines the optimal policy to be adopted when the same labor disutility can receive two opposite interpretations: taste for leisure and activity limitation. In the absence of complete information about individual characteristics, an income tax does not allow to distinguish lazy from handicapped individuals. One may however rely on a combination of commodity and income taxes to redistribute from the former to the latter when they differ in their preferences for commodities.

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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 2003018.

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Date of creation: 00 Feb 2003
Date of revision:
Handle: RePEc:cor:louvco:2003018
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  1. Paul Beaudry & Charles Blackorby & Dezs� Szalay, 2009. "Taxes and Employment Subsidies in Optimal Redistribution Programs," American Economic Review, American Economic Association, vol. 99(1), pages 216-42, March.
  2. BOADWAY, Robin & MARCHAND, Maurice & PESTIEAU , Pierre & RACIONERO, Maria del mar, . "Optimal redistribution with heterogeneous preferences for leisure," CORE Discussion Papers RP 1566, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Blackorby, Charles & Donaldson, David, 1988. "Cash versus Kind, Self-selection, and Efficient Transfers," American Economic Review, American Economic Association, vol. 78(4), pages 691-700, September.
  4. Diamond, Peter A, 1998. "Optimal Income Taxation: An Example with a U-Shaped Pattern of Optimal Marginal Tax Rates," American Economic Review, American Economic Association, vol. 88(1), pages 83-95, March.
  5. Katherine Cuff, 1998. "Optimality of Workfare with Heterogeneous Preferences," Working Papers 968, Queen's University, Department of Economics.
  6. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
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