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Well-Being, Poverty and Labor Income Taxation: Theory and Application to Europe and the U.S

Author

Listed:
  • Maniquet, François

    () (CORE, Université catholique de Louvain)

  • Neumann, Dirk

    () (OECD)

Abstract

In a model in which agents differ in wages and preferences over labor time-consumption bundles, we study labor income tax schemes that alleviate poverty. To avoid conflict with individual well-being, we require redistribution to take place between agents on both sides of the poverty line provided they have the same labor time. This requirement is combined with efficiency and robustness properties. Maximizing the resulting social preferences under incentive compatibility constraints yields the following evaluation criterion: tax schemes should minimize the labor time required to reach the poverty line. We apply this criterion to European countries and the US.

Suggested Citation

  • Maniquet, François & Neumann, Dirk, 2016. "Well-Being, Poverty and Labor Income Taxation: Theory and Application to Europe and the U.S," IZA Discussion Papers 10181, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp10181
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    References listed on IDEAS

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    1. Laurence Jacquet & Etienne Lehmann, 2015. "Optimal Income Taxation when Skills and Behavioral Elasticities are Heterogeneous," CESifo Working Paper Series 5265, CESifo Group Munich.
    2. Wane, Waly, 2001. "The optimal income tax when poverty is a public 'bad'," Journal of Public Economics, Elsevier, vol. 82(2), pages 271-299, November.
    3. Besley, Timothy & Coate, Stephen, 1992. "Workfare versus Welfare Incentive Arguments for Work Requirements in Poverty-Alleviation Programs," American Economic Review, American Economic Association, vol. 82(1), pages 249-261, March.
    4. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-766, May.
    5. Ravi Kanbur & Tuuli Paukkeri & Jukka Pirttilä & Matti Tuomala, 2018. "Optimal taxation and public provision for poverty reduction," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(1), pages 64-98, February.
    6. Hausman,Daniel M., 2012. "Preference, Value, Choice, and Welfare," Cambridge Books, Cambridge University Press, number 9781107695122, July - De.
    7. Hausman,Daniel M., 2012. "Preference, Value, Choice, and Welfare," Cambridge Books, Cambridge University Press, number 9781107015432, July - De.
    8. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
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    Cited by:

    1. repec:spr:sochwe:v:52:y:2019:i:1:d:10.1007_s00355-018-1141-5 is not listed on IDEAS
    2. Stéphane Gauthier & Taraneh Tabatabai, 2019. "How incentives matter? An illustration from the targeted subsidies reform in Iran," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 52(1), pages 97-125, January.

    More about this item

    Keywords

    well-being; poverty; labor income taxation;

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

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