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Poverty Alleviation and Tax Policy

Author

Listed:
  • Jukka Pirttilä
  • Matti Tuomala

    (School of Management, University of Tampere)

Abstract

This paper examines public good provision and tax policy ­ optimal non-linear income taxation and linear commodity taxation ­ when the government departs from purely welfarist objective function and seeks to minimise poverty. This assumption reflects much policy discussion and may help understand some divergences of practical tax policy from lessons in optimal tax analysis. In contrast to Atkinson and Stiglitz (1976), it may be optimal to use differentiated commodity tax rates, including the taxation of savings, even if preferences are separable in goods and leisure. The optimal effective marginal tax rate at the bottom of the distribution may be negative, suggesting that wage subsidy schemes can be optimal. Finally, optimal provision rules are derived for a public good under poverty minimisation.

Suggested Citation

  • Jukka Pirttilä & Matti Tuomala, 2003. "Poverty Alleviation and Tax Policy," Working Papers 0315, Tampere University, Faculty of Management and Business, Economics.
    • Handle: RePEc:tam:wpaper:0315
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    File URL: http://urn.fi/urn:isbn:951-44-5673-4
    File Function: First version, 2003
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    Keywords

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    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

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