IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Is it fair to “make work pay”?

  • R. I. LUTTENS

    ()

  • E. OOGHE

The design of the income transfer program for the lower incomes is a hot issue in current public policy debate. Should we stick to a generous welfare state with a sizeable basic income, but high marginal tax rates for the lower incomes and thus little incentives to work? Or, should we “make work pay” by subsidizing the work of low earners, but possibly at the cost of a smaller safety net? We think it is difficult to answer this question without making clear what individuals are (held) responsible for and what not. First, we present a new fair allocation, coined a Pareto Efficient and Shared resources Equivalent allocation (PESE), which compensates for different productive skills, but not for different tastes for working.We also characterize a fair social ordering, which rationalizes the PESE allocation. Second, we illustrate the optimal second-best allocation in a discrete Stiglitz (1982, 1987) economy. The question whether we should have regressive or progressive taxes for the low earners crucially depends on whether the low-skilled have a strictly positive or zero skill. Third, we simulate fair taxes for a sample of Belgian singles. Our simulation results suggest that “making work pay” policies can be optimal, according to our fairness criterion, but only in the unreasonable case in which most of the unemployed are not willing to work.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://wps-feb.ugent.be/Papers/wp_05_283.pdf
Download Restriction: no

Paper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 05/283.

as
in new window

Length: 33 pages
Date of creation: Jan 2005
Date of revision:
Handle: RePEc:rug:rugwps:05/283
Contact details of provider: Postal: Hoveniersberg 4, B-9000 Gent
Phone: ++ 32 (0) 9 264 34 61
Fax: ++ 32 (0) 9 264 35 92
Web page: http://www.ugent.be/eb

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Robin Boadway & Maurice Marchand & Pierre Pestieau & María del Mar Racionero, 2002. "Optimal Redistribution with Heterogeneous Preferences for Leisure," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 4(4), pages 475-498, October.
  2. M. Fleurbaey & F. Maniquet, 2000. "Fair Social Orderings With Unequal Production Skills," THEMA Working Papers 2000-17, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  3. Marc Fleurbaey & Francois Maniquet, 2002. "Fair Income Tax," Economics Working Papers 0021, Institute for Advanced Study, School of Social Science.
  4. Blundell, Richard & Macurdy, Thomas, 1999. "Labor supply: A review of alternative approaches," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 27, pages 1559-1695 Elsevier.
  5. Stiglitz, Joseph E., 1982. "Self-selection and Pareto efficient taxation," Journal of Public Economics, Elsevier, vol. 17(2), pages 213-240, March.
  6. Diamond, P., 1980. "Income taxation with fixed hours of work," Journal of Public Economics, Elsevier, vol. 13(1), pages 101-110, February.
  7. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  8. John E. Roemer & Rolf Aaberge & Ugo Colombino & Johan Fritzell & Stephen P. Jenkins & Ive Marx & Marianne Page & Evert Pommer & Javier Ruiz-Castillo & Maria Jesus San Segundo & Torben Tranæs & Gert G., . "To What Extent Do Fiscal Regimes Equalize Opportunities for Income Acquisition among Citizens?," EPRU Working Paper Series 00-10, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  9. Emmanuel Saez, 2000. "Optimal Income Transfer Programs: Intensive Versus Extensive Labor Supply Responses," NBER Working Papers 7708, National Bureau of Economic Research, Inc.
  10. Diamond, P., 1994. "Optimal Income Taxation: An Exemple with a U-Shaped Pattern of Optimal Marginal Tax Rates," Working papers 94-14, Massachusetts Institute of Technology (MIT), Department of Economics.
  11. Stiglitz, Joseph E., 1987. "Pareto efficient and optimal taxation and the new new welfare economics," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 15, pages 991-1042 Elsevier.
  12. Tungodden, Bertil, 2000. "Egalitarianism: Is Leximin the Only Option?," Economics and Philosophy, Cambridge University Press, vol. 16(02), pages 229-245, October.
  13. Fleurbaey, Marc & Maniquet, Francois, 1996. "Fair allocation with unequal production skills: The No Envy approach to compensation," Mathematical Social Sciences, Elsevier, vol. 32(1), pages 71-93, August.
  14. Robin Boadway & Michael Keen, 1999. "Redistribution," Working Papers 983, Queen's University, Department of Economics.
  15. Heckman, James J, 1993. "What Has Been Learned about Labor Supply in the Past Twenty Years?," American Economic Review, American Economic Association, vol. 83(2), pages 116-21, May.
  16. Saez, Emmanuel, 2001. "Using Elasticities to Derive Optimal Income Tax Rates," Review of Economic Studies, Wiley Blackwell, vol. 68(1), pages 205-29, January.
  17. Pazner, Elisha A & Schmeidler, David, 1978. "Egalitarian Equivalent Allocations: A New Concept of Economic Equity," The Quarterly Journal of Economics, MIT Press, vol. 92(4), pages 671-87, November.
  18. Tuomala, Matti, 1990. "Optimal Income Tax and Redistribution," OUP Catalogue, Oxford University Press, number 9780198286059, March.
  19. Ebert, Udo, 1992. "A reexamination of the optimal nonlinear income tax," Journal of Public Economics, Elsevier, vol. 49(1), pages 47-73, October.
  20. Maniquet, F., 1996. "An Equal Right Solution to the Compensation-Responsability Dilemma," UFAE and IAE Working Papers 335.96, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  21. Schokkaert, Erik & Van de gaer, Dirk & Vandenbroucke, Frank & Luttens, Roland Iwan, 2004. "Responsibility sensitive egalitarianism and optimal linear income taxation," Mathematical Social Sciences, Elsevier, vol. 48(2), pages 151-182, September.
  22. Luigi, Bernardi, 2002. "Tax systems and tax reforms in Europe: Italy," MPRA Paper 18045, University Library of Munich, Germany.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:rug:rugwps:05/283. 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: (Nathalie Verhaeghe)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.