On the efficiency of equal sacrifice income tax schedules
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.
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- Iván Werning, 2007. "Optimal Fiscal Policy with Redistribution," The Quarterly Journal of Economics, Oxford University Press, vol. 122(3), pages 925-967.
- Emmanuel Saez, 2001. "Using Elasticities to Derive Optimal Income Tax Rates," Review of Economic Studies, Oxford University Press, vol. 68(1), pages 205-229.
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- Matthew Weinzierl, 2012.
"The Promise of Positive Optimal Taxation: Normative Diversity and a role for Equal Sacrifice,"
NBER Working Papers
18599, National Bureau of Economic Research, Inc.
- Weinzierl, Matthew, 2014. "The promise of positive optimal taxation: normative diversity and a role for equal sacrifice," Journal of Public Economics, Elsevier, vol. 118(C), pages 128-142.
- Louis Kaplow & Steven Shavell, 2001. "Any Non-welfarist Method of Policy Assessment Violates the Pareto Principle," Journal of Political Economy, University of Chicago Press, vol. 109(2), pages 281-286, April.
- Berliant, M. & Gouveia, M., 1990.
"Equal Sacrifice And Incentive Compatible Income Taxation,"
RCER Working Papers
219, University of Rochester - Center for Economic Research (RCER).
- Berliant, Marcus & Gouveia, Miguel, 1993. "Equal sacrifice and incentive compatible income taxation," Journal of Public Economics, Elsevier, vol. 51(2), pages 219-240, June.
- Efraim Sadka, 1976. "On Income Distribution, Incentive Effects and Optimal Income Taxation," Review of Economic Studies, Oxford University Press, vol. 43(2), pages 261-267.
- Mill, John Stuart, 1874. "Essays on Some Unsettled Questions of Political Economy," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, edition 2, number mill1874.
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