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Optimal Non-Welfarist Income Taxation for Inequality and Polarization Reduction

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  • Vincenzo Prete

    () (Department of Economics (University of Verona))

  • Alessandro Sommacal

    () (Department of Economics (University of Verona))

  • Claudio Zoli

    () (Department of Economics (University of Verona))

Abstract

We adopt a non-welfarist approach to investigate the effect of different redistributive objectives on the shape of the optimal tax schedule. We consider inequality and income polarization reduction objectives and we identify socially desirable three brackets piecewise linear tax systems that allow to collect a given revenue. The optimal tax problem is formalized as the maximization of families of rank-dependent social evaluation function defined over net incomes. These functions allow to incorporate within the same social evaluation model concerns for inequality and for polarization reduction. Both with fixed and variable labour supply the optimal tax schemes substantially differ as the focus moves from the reduction of inequality to the one of polarization. In the case of inequality concerns the optimal tax system is mainly convex exhibiting increasing marginal tax rates unless when labour supply elasticities are higher. While in case of polarization concerns the optimal tax scheme is not-convex with reduced marginal tax rate for the upper income bracket.

Suggested Citation

  • Vincenzo Prete & Alessandro Sommacal & Claudio Zoli, 2016. "Optimal Non-Welfarist Income Taxation for Inequality and Polarization Reduction," Working Papers 23/2016, University of Verona, Department of Economics.
  • Handle: RePEc:ver:wpaper:23/2016
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    Cited by:

    1. Johannes König & Carsten Schröder, 2018. "Inequality-minimization with a given public budget," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 16(4), pages 607-629, December.

    More about this item

    Keywords

    Non welfarism; Rank-dependent social evaluation function; Optimal Taxation; Inequality; Polarization.;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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