Optimal Tax-Transfer-Schemes under Partial Information
According to a widely held belief, all who are able to work, should work . We consider this statement within a framework of non-linear taxation. The crucial differ-ence between our model and the standard model is that the government can distinguish between productive persons and the disabled. A general proposition regarding the design of tax-transfer-schemes under such partial information is derived. Moreover, it is shown that unemployment on the side of the productive poor may still be optimal.
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