IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/0632.html
   My bibliography  Save this paper

Self-Selection and Pareto Efficient Taxation

Author

Listed:
  • Joseph E. Stiglitz

Abstract

This paper analyzes the set of Pareto efficient tax structures. The formulation of the problem as one of self-selection not only shows more clearly the similarity between this problem and a number of other problems (such as optimal pricing of a monopolist) which have recently been the subject of extensive research, but also allow the derivation of a number of new results. We establish (i) under fairly weak conditions, randomization of tax structures is desirable; (ii) if different individuals are not perfect substitutes for one another, then the general equilibrium effects -- until now largely ignored in the literatures -- of changes in the tax structure may be dominant in determining the optimal tax structure; in particular if relative wages of high ability and low ability individuals depends on the relative supplies of labor, the optimal tax structure entails a negative marginal tax rate on the high ability individuals, and a positive marginal tax rate on the low ability individuals (the magnitude of which depends on the elasticity of substitution); (iii) if individuals differ in their preferences, Pareto efficient taxation may entail negative marginal tax rates for high incomes; while (iv) if wage income is stochastic, the marginal tax rate at the upper end may be 100%.Our analysis thus makes clear that the main qualitative properties of the optimal tax structure to which earlier studies called attention are not robust to these attempts to make the theory more realistic.

Suggested Citation

  • Joseph E. Stiglitz, 1981. "Self-Selection and Pareto Efficient Taxation," NBER Working Papers 0632, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:0632
    Note: PE
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w0632.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. 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.
    2. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:0632. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/nberrus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.