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Inequality and Optimal Redistributive Tax and Transfer Policies

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  • Howell H Zee

Abstract

This paper explores the revenue-raising aspect of progressive taxation and derives, on the basis of a simple model, the optimal degree of tax progressivity where the tax revenue is used exclusively to finance (perfectly) targeted transfers to the poor. The paper shows that not only would it be optimal to finance the targeted transfers with progressive taxation, but that the optimal progressivity increases unambiguously with growing income inequality. This conclusion holds up under different assumptions about the efficiency cost of taxation and society’s aversion to inequality.

Suggested Citation

  • Howell H Zee, 1999. "Inequality and Optimal Redistributive Tax and Transfer Policies," IMF Working Papers 99/60, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:99/60
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    Cited by:

    1. Kim, Junghun, 2005. "Tax reform issues in Korea," Journal of Asian Economics, Elsevier, vol. 16(6), pages 973-992, December.
    2. Sterner, Cornelia, 2010. "Ein bedingungsloses Grundeinkommen in Form der negativen Einkommensteuer: Eine soziologische und finanzwissenschaftliche Analyse
      [An unconditional basic income in the form of the negative income ta
      ," MPRA Paper 39703, University Library of Munich, Germany, revised Jun 2012.

    More about this item

    Keywords

    Tax policy; inequality; progressive taxation; optimal taxation; transfer policy; taxation; tax rates; marginal tax rates; average tax rate;

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