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Redistributive Taxation in a Roy Model

Author

Listed:
  • Florian Scheuer

    (Stanford University)

  • Casey Rothschild

    (Wellesley College)

Abstract

We consider optimal redistribution in a model where individuals can self-select into one of several possible sectors based on heterogeneity in a multidimensional skill vector. We show that when the government cannot or does not observe the sectoral choice or underlying skills of its citizens, the constrained Pareto frontier can be implemented with a single non-linear income tax. We derive formulas for this optimal tax schedule. Under natural conditions, we show that a many-sector model with self-selection leads to optimal income taxes that are less progressive than the corresponding taxes in a standard single sector model.

Suggested Citation

  • Florian Scheuer & Casey Rothschild, 2012. "Redistributive Taxation in a Roy Model," 2012 Meeting Papers 395, Society for Economic Dynamics.
  • Handle: RePEc:red:sed012:395
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

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