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On the efficiency of equal sacrifice income tax schedules

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  • Costa, Carlos Eugênio da
  • Pereira, Thiago Neves

Abstract

In an economy which primitives are exactly those in Mirrlees (1971), we investigate the efficiency of labor income tax schedules derived under the equal sacrifice principle. Starting from a given government revenue level, we use Werning’s (2007b) approach to assess whether there is an alternative tax schedule to the one derived under the equal sacrifice principle that raises more revenue while delivering less utility to no one. For our preferred parametrizations of the problem we find that inefficiency only arises at very high levels of income. We also show how the multipliers of the Pareto problem may be extracted from the data and used to find the implicit marginal social weights associated with each level of income.

Suggested Citation

  • Costa, Carlos Eugênio da & Pereira, Thiago Neves, 2013. "On the efficiency of equal sacrifice income tax schedules," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 741, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
    • Handle: RePEc:fgv:epgewp:741
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    References listed on IDEAS

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    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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