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Optimal Taxation and Productive Social Expenditure

Author

Listed:
  • Thomas Bassetti

    (University of Padova)

  • Luciano Greco

    (University of Padova)

Abstract

This paper characterizes the optimal tax and expenditure policies in economies where households’ unobservable gross earnings depend on exogenous (or inherited) capabilities and input investments. In a two-class economy, optimal redistribution relies on non-linear income taxation and input public provision only if the poor households demand less input than the rich. In a multi-class economy, optimal redistribution is implemented by usual-shape, non-linear income taxation and uniform public provision of input, if inherited capability and input are economic substitutes. But, when capability and input are complements, optimal redistribution relies only on non-linear income taxation. Numerical analyses show that, when individual productivity is separable in input and capability, these factors are economic substitutes (or complements) if preferences take into account (or not) the income effects.

Suggested Citation

  • Thomas Bassetti & Luciano Greco, 2015. "Optimal Taxation and Productive Social Expenditure," "Marco Fanno" Working Papers 0196, Dipartimento di Scienze Economiche "Marco Fanno".
  • Handle: RePEc:pad:wpaper:0196
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    References listed on IDEAS

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    Cited by:

    1. Robert Scherf & Matthew Weinzierl, 2020. "Understanding Different Approaches to Benefit‐Based Taxation," Fiscal Studies, John Wiley & Sons, vol. 41(2), pages 385-410, June.

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    More about this item

    Keywords

    In-kind redistribution; Non-linear income tax; Public provision of private goods; Opting out; Topping up; Numerical simulations;
    All these keywords.

    JEL classification:

    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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