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Optimal Income Taxation for the Alleviation of Working-Poverty When Domestic Work is Rewarded

Author

Listed:
  • Xi CHEN

    (STATEC)

  • Ioana SALAGEAN

    (STATEC)

  • Benteng ZOU

    (CREA, Université de Luxembourg)

Abstract

The increase in income needed for working households to escape relative poverty may be achieved either by households supplying more hours of paid work on the labor market, or by policy makers adjusting income taxation, minimum wages and social transfers targeted at working households. While past work has given consid- erable attention to the latter policy instruments, theoretical work on how income taxation could minimize working-poverty is scarce. Our study aims to fill this gap. Unlike the traditional optimal income taxation literature, which considers that households allocate time only between consumption and leisure, we explicitly model households’ decisions as including domestic work, which is a social contri- bution and should be rewarded. This new framework highlights (i) the importance of emphasizing the difference between domestic work and real leisure and, (ii) the policy implications of non-market time allocation.

Suggested Citation

  • Xi CHEN & Ioana SALAGEAN & Benteng ZOU, 2016. "Optimal Income Taxation for the Alleviation of Working-Poverty When Domestic Work is Rewarded," DEM Discussion Paper Series 16-01, Department of Economics at the University of Luxembourg.
    • Handle: RePEc:luc:wpaper:16-01
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    File URL: https://hdl.handle.net/10993/30709
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    References listed on IDEAS

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    More about this item

    Keywords

    Working-poverty; time allocation; optimal income taxation; household-public goods.;
    All these keywords.

    JEL classification:

    • 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
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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